SolarCity Corp (NASDAQ:SCTY) stands to benefit greatly from a number of things happening within the industry right now, and Baird analysts have initiated coverage of the stock. They note that the Investment Tax Credit, falling prices for modules, and increasing consumer adoption of solar photovoltaic systems will all benefit the company.

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However, they see it as being fairly valued right now, so they have initiated coverage with a Neutral rating and a $37 per share price target.

U.S. solar industry benefiting SolarCity

Analysts Ben Kallo and Tyler Frank issued a report to investors this week highlighting some key points in their estimates for SolarCity Corp (NASDAQ:SCTY). They note that since 2006, the company has seen rapid growth and now holds a major part of the residential and commercial solar markets in the U.S. They note that the company had more than 64,000 customers as of the end of the second quarter of the year.

According to Baird, the company’s lease and PPA financing makes it easier for consumers to adopt SolarCity’s systems without having to pay much or even anything up front to have them installed.

Growth opportunities ahead for SolarCity

They said the U.S. Investment Tax Credit will be a key driver of growth at SolarCity Corp (NASDAQ:SCTY) over the next several quarters. That credit covers 30 percent of the cost of solar PV systems which are eligible for the program. It runs through 2016, thus giving SolarCity time to expand its margins by reducing the cost of modules and increasing operating efficiency. The tax credit will also help SolarCity find ways to cut down installation time and labor costs. In addition, it should help keep demand for the company’s solar PV systems high through 2017.

The analysts also note that SolarCity Corp (NASDAQ:SCTY) has a number of different sales channels which provide additional opportunities for growth. The company has a large sales force of both internal and external sales people. It also partners with homebuilders and has agreements with automakers and home improvement retail chains to co-market its products.

Can SolarCity scale up to its target?

The Baird analysts believe that SolarCity’s target of 1 million customers by July 2018 might be a bit difficult to hit. They suggest that the solar PV system maker will face some challenges in attempting to scale up its workforce to hit that target and then scaling back down again after the tax credit expires in 2017.

They based their $37 per share price target for SolarCity Corp (NASDAQ:SCTY) on their estimates of the net present value of the company’s current contracted projects and project deployments through 2017.

As of this writing, shares of SolarCity had risen 1 percent Wednesday morning.