SolarCity Corp Again Downgraded By Barclays

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SolarCity Corp Again Downgraded By Barclays
By BrokenSphere (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons

SolarCity has again been downgraded, this time by Barclays. The solar firm has been worrying investors for a long time and most recently disappointed investors when it missed the consensus estimate for adjusted net loss in the latest reported quarter. Also its decision to lower its fiscal year installations guidance worried investors, who sent shares dropping 20%.

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Several headwinds for SolarCity

Following such events, several research firms, including Oppenheimer and Baird, lowered their price targets on the company. On Monday, Barclays analyst John Windham downgraded the solar firm from Equal Weight to Underweight, citing several reasons, including higher leverage.

Windham notes that several risks are associated with SolarCity’s residential portfolio. According to the analyst, a major threat comes from the announcement by Synchrony Financial, a consumer financial company, to hike its net off charges, suggesting a hike in bad debt due to consumers missing payments. Another concern for the solar firm is the future course of U.S. interest rates, which are expected to rise later this year.

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“Higher potential interest rates make us more cautious on the residential solar space given … the sensitivity to financing cost in the ABS and tax-equity markets; and … the long duration nature of their consumer leases portfolio,” the analyst notes.

Apart from its weak earnings, SolarCity has a high debt profile and is highly leveraged. In 2015, a significant rise was seen in SolarCity’s debt and other liquidity ratios. Therefore, Barclays is concerned about SolarCity’s credit profit. Barclays has a price target of $20 on the solar firm.

SolarEdge liked by Barclays

SolarCity’s downgrade adds to the growing concerns about the performance of the solar power systems provider in the first half of 2016. Last month, the solar firm posted a first quarter loss of $25 million or 25 cents per share, versus 22 cents per share last year.

In May, Deutsche Bank lowered its price target on SolarCity from $49 to $32. Despite the positive long-term view on the stock, the firm warned investors that shares could remain within a trading range in the near term. Though Barclays is concerned about the U.S. residential solar market, it continues to favor SolarEdge, “due to its ability to continue to grow market share, diversification between leased and system sales markets, and strong balance sheet position.”

On Monday, SolarCity shares closed up 2.63% at $21.88. Year to date, the stock is down almost 57%, while in the last year, it is down almost 62%. The stock has a 52-week high of $61.72 and a 52-week low of $16.31.

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Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at amanjain@valuewalk.com
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