Baird Equity Research analysts Ben Kallo and Tyler Frank reiterate a Neutral rating for SolarCity Corp (NASDAQ:SCTY) as they examine the latest numbers from the company.

SolarCity SCTY FSLT TAN

We reiterate our Neutral rating and maintain our $81 price target following SolarCity Corp (NASDAQ:SCTY)’s Q4 earnings. SolarCity deployed 103 MW, increased retained value per watt to $1.51 from  $1.37, continued to reduce costs, and maintained 2014 guidance of 475MW to 525 MW deployed. The company, however, delayed releasing full financial results until March 3, and incremental retained value was flat q/q. Furthermore, Q1 guidance looks lite but likely due to seasonality.

SolarCity’s revenue and MW deployed were in line with estimates

SolarCity Corp (NASDAQ:SCTY) had revenue of $47.3M vs. our/consensus estimates of $43.5M/$43.4M and deployed 103 MW in the quarter vs. our estimate of 101 MW. Total cash payments under contract rose to ~$2.0B at YE:13, up from $1.1B at YE:2012. We will update our model after full Q4 results are released.

Average retained value per watt continues to increase

Average retained value per watt increased to $1.51 from $1.37 in Q3:13 as SolarCity Corp (NASDAQ:SCTY) continued to benefit from lower financing and installation costs. Incremental retained value was ~$1.90 in Q4 (after backing out a $55M-$60M impact from securitization) compared with ~$1.92 in Q3:13. We expect incremental retained value to increase in Q1:14 as the company deploys less commercial installations.

Q1:14 guidance of 80 MW (midpoint) was lower than expected

SolarCity expects to be cash flow positive in 2014 and we believe this year will be back-half loaded as SolarCity Corp (NASDAQ:SCTY) expands and trains its sales and installation force.

Management feels comfortable with ~171 mw of un-deployed tax equity financing capacity; we should see additional ABSs in the near-term. SolarCity expects to come to market with ~$200M of ABSs in 1H:14, including $90M-$100M at the beginning of Q2:14. We believe SolarCity could see interest rate reductions as investors become more comfortable with the product.

SolarCity’s valuation

Our price target is based on our estimates of the net present value of SolarCity Corp (NASDAQ:SCTY)’s current contracted projects and our estimates of projects deployed from 2014 through 2017. We use a 6% discount rate for initial contracts and 8% for renewal contracts and have discounted the cash flows to YE:2014.