SolarCity Alert: Baird Downgrades To Neutral, Slashes Price Target

In a report published Monday, Baird analysts downgraded the rating on

to Neutral, while reducing the price target from $76 to $65. The company is expected to introduce its "levered retained value" metric in the near term. Although this would enable "more accurate valuation," the levered retained value may be "optically negative" since it will be "lower than unlevered retained value," the analysts mentioned. SolarCity continues to spend cash for business growth. Therefore, valuing the company on cash flow may not be appropriate at this stage. "In the longer term, we believe SCTY may provide additional metrics allowing for independent valuation of the project development portion of the company (DevCo) and operating portion of the company (OpCo)," the analysts said. The regulatory backdrop is not favorable and "creates market/headline risk." Although SolarCity is likely to report its Q1 results ahead of expectations, the "bar was set low," the report added. Moreover, the analysts believe that 2015 will be 2H weighted and the company's shifting mix would impact margin over time.