SolarCity Corp (NASDAQ:SCTY) shares soared to a new high on Thursday, topping $56 per share briefly before retreating a bit. They ended the trading day with more than a 3 percent increase in value. Analysts at Raymond James took the opportunity to adjust their estimates for the company after this week’s run.
SolarCity hits three major milestones
Pavel Molchanov said he updated his estimates for SolarCity Corp (NASDAQ:SCTY). The company acquired Zep Solar last week and also provided updated deployment guidance for 2014. In addition, this week the solar panel maker issued new equity and convertible debt.
The analyst notes that although there has been “a sizable element of multiple expansion” in the company’s share price surge since its initial public offering last year, the company is executing well. He believes SolarCity’s place at the top in its industry is secure even though the landscape remains competitive and is getting even tougher as competing lease providers receive capital as well. He calls the company “a textbook ‘story stock’” and says the market isn’t currently focusing on its “distant timeline to profitability” or its rich valuation. However, he notes that it may be more difficult for SolarCity Corp (NASDAQ:SCTY) to provide upside surprises at the multiples it currently enjoys.
SolarCity acquires Zep Solar
The deal announced between SolarCity and Zep Solar is worth $158 million and will be paid all in equity. Molchanov estimates that SolarCity will receive 3.5 million shares of Zep, although the two companies have not said exactly how many shares will be paid.
Zep and SolarCity have already been doing business together for some time. Zep is one of the top companies in the mounting systems part of the photovoltaic value chain. The company has been supplying mounting systems to SolarCity. By bringing Zep in-house, SolarCity will be able to not only continue using Zep’s systems in its own installations, but also keep selling them to third parties overseas. At this point, the analyst isn’t ascribing any credit for these sales into his revenue estimates.
SolarCity updates deployment guidance
Last Friday, SolarCity Corp (NASDAQ:SCTY) preannounced that it deployed 78 megawatts worth of installations in the third quarter. That’s a 47 percent increase from the previous quarter’s 53 megawatts. The company’s cumulative energy contracts climbed to 72,506, while cumulative customers increased to 82,235 by the end of September. The company left its full-year 2013 deployment guidance of 278 megawatts unchanged, so this implies that it will deploy 101 megawatts in the fourth quarter, which is typically strong seasonally. This is a 29 percent increase.
For 2014, the company guided for deployment of between 475 and 525 megawatts, which equates to a 71 to 89 percent growth year over year. That’s on par with this year’s 78 percent increase and is a bit faster than Molchanov’s 60 percent assumption. As a result, he increased his 2014 revenue estimate a bit. He also raised his estimates for selling, general and administrative expenses for the year. His 2014 revenue estimate is now $231 million, compared to his previous estimate of $227 million.
SolarCity issues equity, convertible debt
The analyst said SolarCity Corp (NASDAQ:SCTY)’s issuance of new equity and convertible debt isn’t a big surprise. The company ended up raising more than it planned, selling 3.4 million shares at $46.54 per share, plus $200 million in convertible debt with a 2.75 percent coupon. He notes that the company’s underlying system installations continue to have a funding model based on tax-equity investment funds, this latest corporate level financing will help build out infrastructure and hire more employees.
He is valuing SolarCity Corp (NASDAQ:SCTY) based on its discounted cash flow because he sees 2016 as being the earliest point when the company will return positive earnings per share. This year he estimates that the company will lose $1.38 per share, while next year he believes it will lose $1.15 per share. He continues to rate SolarCity as Market Perform.