SolarCity Corp (SCTY): Goldman Sachs Raises Price Target

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SolarCity Corp (SCTY): Goldman Sachs Raises Price Target
By BrokenSphere (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons

SolarCity Corp (NASDAQ:SCTY) releases its next earnings report on Nov. 6, and analysts are pretty positive on the company heading into the report. However, shares fell more than 5% in early afternoon trading.

SolarCity Corp (SCTY): Goldman Sachs Raises Price Target

SolarCity reports strong sales momentum

Credit Suisse analysts initiated coverage on SolarCity Corp (NASDAQ:SCTY) this week as a Buy, while JPMorgan initiated coverage earlier this month at Overweight. And although Goldman Sachs analysts remain Neutral rated on the company, they’re still positive on it heading into earnings. Brian Lee, Thomas Daniels and Britt Boril of Goldman Sachs actually increased their price target from $39 to $65 per share.

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Shares of SolarCity have outperformed, rising 75% so far this month. Goldman Sachs analysts note that the company is gaining share in a market that’s growing rapidly. They see a near-term volume opportunity of more than 6 gigawatts in the U.S. residential market. That segment grew 50% year over year in the first half of this year. At this point, SolarCity Corp (NASDAQ:SCTY) is growing by almost two times the market because its share has almost doubled, climbing from 15% in 2011 to more than 25% this year.

SolarCity could go higher

The Goldman Sachs analysts believe SolarCity’s retained value will be able to go higher. They estimate that the company generates about $1.40 per watt in incremental retained value and is heading toward $1.80 per watt. They cite cost cuts, higher pricing and lower cost of capital as the reasons they see SolarCity’s retained value increasing.

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The analysts said they believe SolarCity Corp (NASDAQ:SCTY)’s current valuation offers limited upside if the company grows even faster or improves its post-ITC visibility. They adjusted their estimates for the company ahead of earnings as well, raising their estimate for installed megawatts to 278 for this year from their previous estimate of 255. They’re estimating system cost per watt of $3.29, compared to their previous estimate of $3.75. Their equity cost estimate falls to 15% from 15.5%.

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