SolarCity Corp (SCTY) Buy Rating Reaffirmed By Roth Capital

SolarCity Corp (NASDAQ:SCTY) shares have been reassigned Buy rating by Roth Capital analysts. Analyst Philio Shen talked about the recent meetings with the management noting that the recent road show followed by an investor presentation has caught the market by surprise.

Lower NPV/W expected

Lower NPV/W has, also, surprised the market according to the analyst. Shen said that NPV/W for a typical 6.4kW system is now $1.75, a drop of 20% compared to previous $2.19. In the report, the analyst noted that the 44c/W difference can be explained by three factor; Fixed pricing structure of ~15c/kWh for CA compared to ~17c/kWh, using the actual blended escalator of 2.0% vs. prior of 2.9%%; and Lowering of FMV from ~$5.50 to $4.75/W.

The report, also, noted that some erosion of the NPV/W was expected since the company stated about the fixed pricing during its second-quarter earnings call. NPV/W serves as a proxy for RV/W, and lowering it has caused nervousness amongst the customers, believe analysts. SolarCity has altered prices, in the past as well, and there are no more changes expected, after fixing price in other states, in the near to medium-term, believe analysts.

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Fixed pricing better for SolarCity

Shen notes that fixed pricing leads to expansion in the potential market for the company along with a lower customer acquisition costs. SolarCity set the deployment cost of 525MW in 2014 and 950 MW in 2015, and it is expected that lower pricing will be a positive step to meet the guidance. Analyst at Roth Capital sees an aggressive market and in their view the company has made a steady development in gaining a market share.

The report, also, mentions that setting fixed price indicates a strategic shift in the philosophy of downsizing the complications and improving customer experience by de-emphasizing negotiations, as well as increase in the addressable market, while “lowering” CAC.

Fiscal 2017 looks bright for SolarCity as the company stated its 2017 system economics for the first time along with lower NPV/W announcement, which appear quite attractive to the analyst at Roth Capital.

“Using an assumption of 60c/W of SG&A (vs. 74c/W in Q2), we believe SCTY could drive $1/W of NPV or retained value in a normalized subsidy environment,” said Shen.