Weak SolarCity Corp (SCTY) Shares: A Good Buying Opportunity?

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SolarCity Corp (NASDAQ:SCTY) shares were down recently, which a report from Deutsche Bank on 20 March 2014 views as a good buying opportunity. Deutsche Bank analysts Vishal Shah, Jerimiah Booream-Phelps and Susie Min believe that the company could benefit from many fronts including ABS pipeline, a Common Assets rollout in the second half of 2014, and record bookings followed by record installs across 200GW+ residential TAM in 16 existing states.

Industry outlook positive

In the long term, analysts expect some upside due to the “Gigafactory optionality,” which may force the SolarCity Corp (NASDAQ:SCTY) management to update its guidance in the second quarter if the momentum continues. Based on the analysis of the retail electricity trends, analysts note that 80% of the states raised electricity prices last year, and of which 40% have increased the prices by more than 3%. The increase in prices have come despite the low summer natural gas prices, which “supports long term PPA uptrend in key markets,” believe the analysts.

Growing business needs of SolarCity

As of March 20, SolarCity Corp (NASDAQ:SCTY) has job posting in excess of 500 indicating the growing business needs. Of the total postings, analysts believe that 50% are related to sales positions, which would further enhance the record bookings. According to the analysts, winter months are peak “hiring season for the company given back half weighted installs,” and believe the opex expansion of doubling the installs across all existing markets, in the first quarter, as positive, which would drive momentum into 2015.

In the fourth quarter, SolarCity Corp (NASDAQ:SCTY) has been able to lower its opex per watt ex-acquisitions to $0.56 owing to a changed strategy for sales and marketing in the second quarter. This also represents a 30% opex per watt reduction “coupled with a nearly 100% increase in quarterly installs” during the period between the second and fourth quarter. Analysts believe that SolarCity has the potential to deploy operating leverage further, in the second half of 2014, to lower opex per watt to 40 cent in the fourth quarter. Such level represents a 67% rise in MW used, and a 3% opex quarterly expansion.

Deutsche Bank analysts reiterated a Buy rating on SolarCity Corp (NASDAQ:SCTY) with a price target of $90.

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