Stifel Starts SolarCity At Buy, Sees 'Sizable Underpenetrated Market Opportunity'

Shares of SolarCity has been extremely volatile over the past 52 weeks, particularly on Wednesday, when the stock lost nearly eight percent, noticeably underperforming the Nasdaq index that lost only 0.08 percent. Sven Eenmaa of Stifel acknowledged that investment sentiment has turned "more cautious" in recent months as the company's valuation has been "pummeled" by funding challenges faced by some of its peers. Nevertheless, the analyst initiated coverage of the stock with a Buy rating and $64 price target. Eenmaa noted that SolarCity holds a leading 34 percent market share in the U.S. residential rooftop PV installations. The analyst added that the residential solar market has a less than one percent penetration rate of single family home in the US, implying SolarCity faces a "sizable" and "underpenetrated" market opportunity. Eenmaa continued that SolarCity's portfolio of retained solar systems generated $41 million of cash in the second quarter while its rooftop installations grew nearly 80 percent year over year in 2014 and the first half of 2015. Moreover, the company has "strong liquidity" and additional access to financing (over $2.5 billion available) for "continued value accretive installation growth." Eenmaa also pointed out that SolarCity has multiple levers it can pull to drive its residential system cost from its current $2.90/W to $2.50/W by the end of 2017 while the company's acquisition of Silevo in 2014 could help lower costs even further to $2.30/W. Bottom line, a mixed news flow from utilities has placed an "increasing risk premium" on the stock, but SolarCity's penetration of its addressable markets remains "low" and the stock is "attractively valued."