SolarCity Corp (NASDAQ:SCTY) now faces a lawsuit filed by Shareholders Foundation, which claims that the company has violated federal securities laws. That’s likely just part of why the company’s stock is falling today. Federal officials also said they would be looking over SolarCity’s books, which isn’t helping the stock either.
Meanwhile, analysts from at least two firms have released fairly positive reports regarding SolarCity’s second asset-backed security, which was announced last week. They see the new security as an incremental positive for SolarCity
Details on the lawsuit against SolarCity
According to The Street, the plaintiff filed the lawsuit in connection because of an announcement SolarCity Corp (NASDAQ:SCTY) made to investors on March 18, saying its Dec. 31, 2010 – 2012 annual reports should no longer be relied upon. The case claims SolarCity “made allegedly false and / or misleading statements and / or failed to disclose” that the company “lacked adequate controls over financial report” and that it “misclassified its reported expenses.”
The filing of this case means someone has filed lawsuits against both of Elon Musk’s public companies. He is chairman of SolarCity Corp (NASDAQ:SCTY) and CEO of Tesla Motors Inc (NASDAQ:TSLA), which faces a suit filed under Wisconsin’s lemon law.
Baird remains Neutral-rated on SolarCity
In a research update dated April 4, 2014, Baird analysts Ben Kallo and Tyler Frank reiterated their Neutral rating and $75 a share price target for SolarCity Corp (NASDAQ:SCTY). They note that the announcement of the second asset-backed security was incrementally positive, but it was smaller than expected. Investors were generally expecting it to be around $100 million, but it ended up being closer to $70 million. SolarCity said it used its “underlying pool of cash grant projects,” which restricted the offering’s size. In addition, the security’s duration was cut down from 13 years to about 8 years.
In addition, the Baird team said because the tax equity is more complex, it could impact the timing of SolarCity Corp (NASDAQ:SCTY)’s future asset-backed securities. They said because of SolarCity’s current valuation and also the “overhang of Chinese tariff,” they’re remaining on the sidelines. They don’t expect any problems like supply chain disruptions, but if disruptions do occur, they could be a greater risk than higher costs. They’re looking forward to the Department of Commerce’s planned release of more details on June 2.
Goldman Sachs remains Buy-rated on SolarCity
In another report dated April 3, 2014, Goldman Sachs analysts reiterated their Buy rating on SolarCity Corp (NASDAQ:SCTY). They say the company continues executing on its efforts to “open the securitization market to the solar asset class.” Analysts Brian Lee, Thomas Daniels and Britt Boril believe SolarCity is “uniquely positioned” to be the “leader in solar asset securitization.”
They estimate that for every 1% SolarCity Corp (NASDAQ:SCTY)’s cost of capital is reduced, the incremental net present value rises by about 13 cents per watt. That’s about a 5% to 10% increase in economic value per customer. They believe interest rates will keep falling and that the tail risk from investment tax credits will be reduced, which would be a positive catalyst for SolarCity.