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Roth Holds $19 Target On Solar City, Doesn't See Major Funding Issue This Year

SCTY - Roth Holds $19 Target On Solar City, Doesn't See Major Funding Issue This Year

ROTH Capital’s Philip Shen believes that while SolarCity Corp SCTY is unlikely to report a volumes miss for Q1, the company is expected to cut its full-year guidance.

Shen reiterated a Neutral rating on SolarCity, with a price target of $19.

Guidance Cut Likely

“While the possibility of a full year guidance cut has been widely discussed, we think focus should also be on the Q2 guide as management may give itself another quarter to hit its annual target,” the analyst mentioned.

Despite the recent 35 percent decline in the share price, Shen prefers to remain on the sidelines while expectations for the company are being reset.

The analyst explained that SolarCity would require Q2–Q4 installation growth of 50 percent year-on-year in order to achieve its full-year guidance, assuming that the company is able to meet its Q1 guidance of 180MW.

Related Link: SolarCity's $227M Financing Is A "Major Catalyst"; Avondale Says Buy The Stock

However, Shen views the Q1 guide as a “tall order,” given the challenges being faced by solar lease players, including customer acquisition costs and policy headwinds across several states.

“We think the bigger focus should be on the quality of the Q2 guide, which we believe may need to be >260MW,” Shen said, expressing caution regarding negative stock reaction following recent guidance misses and cuts.

No Major Funding Issues

Shen also pointed out that currently the company’s funding gap for 2016 is about $153 million, assuming the availability of tax equity.

“Our work suggests lenders are still quite comfortable with the resi CF stream and will likely continue to provide warehouse facilities. In fact, we expect new products to expand the financing options available to SCTY and other resi players,” the analyst added.

DateFirmActionFromTo
May 2016Guggenheim SecuritiesInitiates Coverage onBuy
May 2016Credit SuisseMaintainsOutperform
Mar 2016Morgan StanleyMaintainsOverweight

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