SolarCity stock moved higher today after the company announced a new solar service in Pennsylvania. The company has had a difficult time over the last several months as changes in states’ net metering rules and other issues weighed on sentiment. However, analysts at Deutsche Bank think the concerns are slowly beginning to lift and note that SolarCity stock has picked up some positive momentum over the last couple of weeks on the heels of a handful of pieces of positive news.
SolarCity reveals tax equity transactions
Analyst Vishal Shah said in a report dated April 11 that he continues to rate SolarCity stock as a Buy with a $49 per share price target. He notes that the solar company has so far announced about $215 million in tax equity transactions so far this year, adding that he sees the potential for upside to $310 million. The first tax equity deal was $249 million FMV, with $90 million in cash and $180 million upsize potential. The second was $131 million FMV, and the third was $188 million FMV.
SolarCity also had approximately $650 million in tax equity on its books as of the end of the year, which means that it still requires between $1.2 billion to $1.3 billion in financing to meet its installation targets for this year, said Shah. He notes that the quarterly run-rate must rise from where it was in the first quarter in order for SolarCity to keep up enough of a backlog exiting the year. However, he adds that his checks indicate that the company should be able to achieve the required amount in tax equity financing by the end of the year as the tax equity markets are still “generally open.”
Shah also says SolarCity would have to raise about $1.25 billion in non-recourse debt financing this year, but so far it has only raised about $400 million to $500 million. He does see investors’ concerns about ABS financing as valid as financing costs are rising by 5% to 6%. However, he said the company can still monetize its operating assets in order to access the cash equity markets. Further, it announced the industry’s first of its kind SREC facility worth $40 million and another $150 million facility with a 3.9% borrowing cost.
Concerns about net metering weighed on SolarCity stock
The DB analyst believes the concerns about net metering in Massachusetts and other states are slowly starting to dry up as Massachusetts passed the net metering 2.0 rules last week, setting the cap for commercial systems at 7%, an increase from the previous 4%, although pricing was cut 40%. He sees the more important point about the ruling was the fact that DOER can now reveal emergency regulations about SREC 2.0, which will apply to smaller solar power systems of less than 25 kilowatts, until SREC 3.0.
Shah believes these net metering developments are a huge positive for SolarCity and doesn’t expect any more headwinds in this area for the rest of the year.