SolarCity’s softening guidance was a matter of concern for many, but now they must be relieved since the company has announced a $227 million cash equity raise. According to Michael Morosi, an analyst with Avondale Partners, the cash financing is a “major catalyst” for stock.
SolarCity “firing on all cylinders”
Morosi believes that market concerns about SolarCity’s growth are overrated. However, the analyst believes that the guided growth target of 40% seems unachievable, especially since the first quarter has been really weak. Morosi points out also that SolarCity’s stock has not been valued as a growth stock.
“With ~$15/share of net asset value on the balance sheet, the company’s DevCo is valued at 4x EV/Adjusted EBIT, which is not exactly consistent with a 40 percent grower,” the analyst said.
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SolarCity has raised more than $1 billion in capital in the past two months. All the funds – including the most recent one – will help in improving the cash flows of the company and de-risking its portfolio, the analyst notes.
SolarCity is “firing on all cylinders,” according to Morosi, who believes the successful financing endeavors of the company will lead to re-rating of its stock. Avondale has a Market Outperform rating on the stock with a price target of $40.
Better monetize cash flows
This is SolarCity’s first cash equity transaction with partner John Hancock Financial. The company monetizes the majority of its 20-year contracts on underlying cash flows, retains ownership of the assets, and continues to offer its services to customers.
SolarCity’s Executive Vice President of Global Capital Markets, Radford Small, said, “We’re proud to partner with John Hancock, one of the most trusted brands in insurance and financial services, on this 20-year investment in our residential and commercial solar contracts.”
Small notes that cash equity helps the company better monetize cash flows, resulting in maximizing upfront financing proceeds. The latest transaction is an exciting addition and diversification of the company’s long-term financing options for solar assets, the executive said.
The first transaction includes a portfolio of assets representing a sample of SolarCity’s current customer base. The residential customers in the portfolio have an average FICO score of 744, and its commercial customers include several national brand retail locations.
In all, the projects are spread across 18 states, and none of the states represented more than 35% of the portfolio. The vast majority of the installations were completed in 2015.
In premarket trading today, SolarCity shares were up by over 1%. Year to date, the stock is down almost 48%, while in the last year, it is down more than 57%.