SolarCity Corp (NASDAQ:SCTY) shares plunged 7.43% on Wednesday to $74.01 on Wednesday after Robert W. Baird Equity Research downgraded the stock from Outperform to Neutral. Though shares recovered 2.49% in pre-market trading Thursday. The downgrade was a bit surprising given Baird last month raised its price target for SolarCity from $71 to $81.
Analysts maintain $81 price target for SolarCity
Robert W. Baird analysts Ben Kallo and Tyler Frank said in a research note that the downgrade was a valuation call. Kallo and Frank maintained their $81 price target on the stock. The analysts said that SolarCity Corp (NASDAQ:SCTY) has already demonstrated its ability to gain market share in the residential rooftop market. But much of its growth opportunities have been priced in its current valuation. The present price adequately reflects the risk/reward ratio, so a Neutral rating is warranted.
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Robert W. Baird advised investors to wait for a more lucrative entry point before buying additional shares. Tesla Motors Inc (NASDAQ:TSLA) founder Elon Musk is the chairman of SolarCity Corp (NASDAQ:SCTY). In December, the San Mateo-based company agreed to offer batteries made by Tesla Motors Inc (NASDAQ:TSLA) with its commercial solar panels. That will help its business clients to store the electricity and lower the bill.
SolarCity well-positioned to increase market share
Robert W. Baird estimates that SolarCity Corp (NASDAQ:SCTY) occupied 26.2% of the residential solar market in the U.S. in Q2, 2013. That’s much higher than the combined total of its eight closest competitors. In Q1, 2013, it had about 20% market share. SolarCity aims for 475-525MW of project deployment in 2014. At the midpoint, that represents an 80% YoY growth.
Analysts think this target is achievable with rising U.S. solar demand a growing market share. The research firm estimates residential and commercial solar market to grow 20% and 13.8% YoY, respectively. SolarCity Corp (NASDAQ:SCTY) has the scale and financing options necessary to capture additional market share. The company has more than $500 million in cash. And last month, it concluded a $100 million loan to fund new panel installations.