SolarCity has earned another price target cut. Many still view Tesla’s offer to buy the company as nothing but a bailout, and yet, some analysts expect it to close despite the controversy. In the event that it passes the scrutiny of both companies’ shareholders, the deal is expected to close in the fourth quarter. If the merger doesn’t go through, however, SolarCity is expected to have an even more difficult time than it had before Tesla made the offer.Tesla Motors, SolarCity

 

This morning, JPMorgan analysts said they’ve cut their price target for the solar firm, following in the footsteps of UBS, which slashed its target for SolarCity last week. Axiom also issued bearish commentary on the solar firm last week.

JPMorgan cuts price target

In a report dated September 12, JPMorgan analyst Paul Coster said he has trimmed his price target from $25 to $21 per share (for the end of 2017) but maintained his Neutral rating on the company. Although he expects the merger to close, he cut his target just in case it doesn’t.

He believes that in the event that the two companies do not end up combining, SolarCity will probably have greater discount rates on future capital raises, which then would compromise its prospects for growth. He explained that his previous target was for $25 per share at the end of this year but that he cut his target to reflect the pullback in Tesla shares, although his fundamental analysis suggests a $19 per share fair value.

SolarCity just recently managed to close a fresh $305 million in an equity transaction to fund projects at a time when it was facing a longer-than-usual delay in securing funds for its projections due to Tesla’s offer. Coster estimates that the company’s discount rate will rise 100 basis points in fiscal 2017 if the EV maker does not acquire it. The higher the discount rate goes, the slower SolarCity’s installations are expected to go, resulting in a falling fair value.

Axiom issues bearish report on SolarCity

On Friday, Axiom analyst Gordon Johnson II reiterated his Sell rating and $7 price target on SolarCity. In his assessment of the company’s 317-page S-4 filing, he found that Tesla may have failed to consider whether another company might have been a “better fit.” He noted that after Tesla’s board voted to approve the merger in May, Evercore was brought in.

The firm said on June 20 that the company was the “most attractive” solar match for Tesla with no more than three weeks of due diligence. Also it didn’t have SolarCity’s financials until July 11, and Johnson believes neither Tesla nor Evercore had access to the company’s financial statements. As a result, it seems that it would have been impossible for Evercore to do a comparable analysis of the solar firm’s peers.

Additionally, he noted that SolarCity engaged with at least three other possible suitors in July, but not were willing to counter the offer from Tesla. As a result, he believes Tesla’s shareholders are “incrementally less inclined to vote yes” for the deal before the April 30 cutoff date, putting him at odds with JPMorgan’s view on potential approval.

However, he also considers whether the EV’s shareholders are “willfully oblivious,” noting that there are daily questions surrounding the possibility that the merger will fall apart. He stated that the extensive S-4 provided details that were “either previously not available, or had been previously denied by TSLA and/or SCTY.” Adding those details to the “timing of recent stock sales by both TSLA and Mr. Musk,” he questions whether Tesla’s shareholders are just “‘willfully oblivious’ to the many red flags surrounding this deal.”

UBS cuts SolarCity price target

On September 6, UBS analyst Julien Dumoulin-Smith said he cut his price target for SolarCity from $25.37 to $19 per share following his own perusal of the S-4 filing. One of his biggest concerns is the 6.5% bond raise by SolarCity, which was mostly funded by SolarCity Chairman and Tesla CEO Elon Musk and his cousins the Rive brothers, both of whom are key figures at the solar firm. He believes that the company’s tax equity access is unhindered, as it stood at $392 million in the second quarter with about $250 million signed in July. It had $146 million in cash before the bond raise, which he said indicates pressure on working capital, especially in the event of an installation ramp in the second half of the year.

The UBS analyst added that even SolarCity management recognized problems because they provided their merger advisors a “liquidity management” scenario which pointed to much lower megawatt installed targets and higher implied cost per watt. He said this highlights the ongoing challenge the company faces.

Shares of SolarCity surged by as much as 7.57% to $18.04 during regular trading hours on Monday due to the equity transaction that was announced this morning.