Avondale Sees Upsell Opportunities In SolarCity's Storage And Home Energy Management

Avondale Partners’ Michael Morosi maintained a Market Outperform rating for SolarCity Corp SCTY, with a price target of $40, after the company announced its sixth securitization of a $57 million offering backed by cash flows from 5.6L residential PPAs and leases representing 36MW.

Analyst Michael Morosi believes that the company’s success in pricing a transaction six weeks after its most recent transaction displays its ability to deliver “repeatable upfront monetization of its development pipeline while maintaining meaningful residual ownership in its project portfolio.”

The consequent improvement in SolarCity’s cash flows is likely to appeal to value investors, Moros commented.

The ABS offering has enabled SolarCity to generate $3.10/W of upfront cash flow, including $1.61/W via securitization and $1.50/W via tax equity. This implies an operating margin of $0.40/W, while retaining ownership of the residual cash flows and the customer relationship via future upsell opportunities like storage and home energy management.

Morosi also pointed out that the advance rate of 75 percent was the highest for any PPA or lease offering to date. He added that the company’s ability to complete a deal in the tightest financial market conditions is a testament of investor confidence in its asset base.

Morosi believes that the market continues to underestimate SolarCity’s ability to deliver sustainable cash margins while maintaining attractive long-term economics.