It's Time to Enter The Vivint Solar Story, Citi Says In Upgrade

Full-service residential solar provider Vivint Solar Inc VSLR's shares are now investable, according to Citigroup.

The Analyst

Praful Mehta upgraded Vivint from Neutral to Buy and doubled the price target from $4.25 to $8.50.

The Thesis

Larger players like Vivint are well-positioned to capture the nearly 15-percent growth projected for distributed generation for the next three to five years, Mehta said in the Monday upgrade note. (See the analyst's track record here.)

The company's focus on economic growth and the use of direct/dealer channel improves Citi's confidence in the story, he said.

The monetizable value of Vivint's assets has increased as investors become more comfortable in cash flows from these assets and are willing to accept lower returns, Mehta said. 

Citing a 100-basis point reduction in the discount rate, Citi increased its existing asset value estimate from $1 to $18 per share. The growth opportunity post-2021 is likely worth $2 per share, assuming a conservative value/watt of 50 cents/watt on new contracts and declining growth over time, the analyst said. 

That said, Mehta said Vivint's growth option value could be more than the current $2 per share, with storage and home EV charge presenting potential opportunities.

The analyst noted that net debt reduced by $2 per share.

Citi sees regulatory risk, especially due to changes to net metering and fixed charges for DG customers, as well as risk stemming from management's disciplined operation and capital allocation.

For the first quarter, the firm expects sales of 44MW, with a retained value of 50 cents/watt for 2019 at a 7-percent discount rate and 20-percent renewal value.

"With VSLR's strong execution and improving investor belief in DG assets, we think this is a good time to enter the VSLR story."

The Price Action

Vivint shares were up 9.71 percent at $6.78 at the time of publication Tuesday. 

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Photo courtesy of Vivint Solar.