SolarCity Corp (NASDAQ:SCTY) has performed better than most other momentum stocks in 2014. The company has traded flat since the start of the year, avoiding the loss of value suffered by many other growth stocks. The company is still well below its 2014 high, however, and it will take some time for it to recover that value. A new report from Baird lays out a way it might do just that.
According to Ben Kallo and Tyler Frank, who authored the Baird Research report on Elon Musk’s solar exploit, SolarCity Corp (ASDAQ:SCTY) business justifies a $75 price target. The company is, according to the analysts, priced at a level that forms an excellent buying opportunity.
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SolarCity reduces costs and expands production
One of the most important efforts of SolarCity Corp (NASDAQ:SCTY) right now is cost reduction. The company estimates it can reduce its costs by 30% while retaining value of $1.90/watt. The firm is currently lowering customer acquisition costs and increasing labor efficiencies in order to meet this goal.
There are headwinds that could slow the company’s plans, however. Talks of a tariff on imports of Chinese solar components suggest the possibility of production problems and increasing costs, though the analysts expect SolarCity Corp (NASDAQ:SCTY) to be able to react credibly to that challenge should it present itself.
Based on the company’s cost cutting efforts and confidence in management’s ability to expand in the long term, the Baird analysts put a price target of $75 per share on SolarCity Corp (NASDAQ:SCTY). It’s clear, however, that the analysts are expecting the company to see volatility as it heads toward that goal. Any estimates relate to the company’s long term business, rather than its short term efforts.
SolarCity is a long term investment
Like Tesla Motors Inc (NASDAQ:TSLA), the other hot Elon Musk property, SolarCity Corp (NASDAQ:SCTY) is not a stock that investors should jump in on expecting near term profits. The company’s industry is newly formed, and it has a significant amount of evolution to undergo before it is close to mature.
According to the report, SolarCity Corp (NASDAQ:SCTY) is trying to “take advantage of the near current tax equity environment to install as many MWs as possible before incentive schemes in the U.S. change.” The firms current model is growth in an environment that tries to promote it. In the long term SolarCity Corp (NASDAQ:SCTY) is likely to be a very different business.
Baird put a $128 “Blue Sky” price target on shares in SolarCity Corp (NASDAQ:SCTY). That number applies to the most optimistic forecast of the company’s performance over the long term. The analysts say they will revisit the long term valuation of the company in a future report.