SolarCity Corp (NASDAQ:SCTY) stock has received a downgrade from analysts at Baird, who cut their rating from Outperform to Neutral. Their price target is $83 per share, however, which still represents a more than 15% potential upside to the company’s stock.

SolarCity SCTY

SolarCity downgraded on valuation

In their latest report, analysts at Baird said the reason for downgrading SolarCity is because of the company’s valuation. The solar panel system installer currently has a market capitalization of about $6.7 billion. Its 50-day moving average is just shy of $70 per share, while its 200-day moving average is just under $65 per share.

The Street Ratings team is highly bearish on SolarCity, rating it as a Sell with a D+ grade. Rather than just valuation, they said some “notable weaknesses” raise concern about the company. They see the weaknesses as outweighing potential strengths and suggest that they could make it hard for investors to see positive results.

Weaknesses seen in SolarCity

The Street sees weaknesses in a number of areas, including “unimpressive” net income growth, a “generally high” risk in debt management, weak operating cash flow and “feeble” earnings per share growth. They note that SolarCity has underperformed in net income compared to the S&P 500 and also the Electrical Equipment industry as a whole. Net income slumped 29.8% year over year as the company’s losses have widened.

SolarCity also has a debt-to-equity ratio of 1.48, which they say is fairly high compared to the rest of the industry. The analysts also note that the company has seen a significant decline in net operating flow and flat earnings per share in the most recently completed quarter. In fact, the company’s earnings per share have fallen over the last year.

The one positive The Street Ratings team sees is SolarCity’s return on equity, which rose greatly year over year.

SolarCity affected by broader industry

SolarCity shares may also be affected by a report from Bloomberg which states that solar companies are seeing a shortage of photovoltaic solar panels because of rising demand for them. The result could be a price increase and delivery limits, thus bringing the potential for even more weight to be added to the company’s results.

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