Oppenheimer analyst Colin Rusch was out today with mixed reports on American solar energy companies SolarCity Corp (NASDAQ:SCTY) and Vivint Solar Inc (NYSE:VSLR). Rusch continues to see a large market opportunity for US residential solar, however, he highlights multiple risks including policy and growth of direct ownership solar systems.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Colin Rusch has a yearly average return of 9.2% and a 46% success rate. Rusch is ranked #388 out of 3977 analysts.
Rusch reiterated an Outperform rating on shares of SolarCity, while slightly reducing the price target to $26 (from $27), which implies an upside of 22% from current levels.
The analyst noted, “As SCTY faces near-term capital needs—we estimate $2B of cash used in operations plus capex for 2Q-4Q16— we are looking for the company to upsize its aggregation facility in the next one to two quarters while refinancing 400MW of seasoned assets. We are watching for indicators of upward pressure on cost of capital.”
Furthermore, “We view SCTY’s ability to monetize the spread between its cost and asset market value as the business’s most important variable. We estimate $188M in 2018 adjusted FCF, defined as (CFO plus LT asset financing) – (capex plus distributions to project investors). We assume (7.3%) CAGR in system costs through 2018.”
Bottom line: “SCTY in our view faces clear near-term capital needs and will need to accelerate the pace of capital recycling while significantly lowering cost per watt to generate positive adjusted FCF over our investment horizon.”
Out of the 16 analysts polled by TipRanks (in the past 3 month), 7 rate SolarCity stock a Buy, 7 rate the stock a Hold and 2 recommend to Sell. With a return potential of 47.67%, the stock’s consensus target price stands at $31.38.
Vivint Solar Inc
In addition, Rusch initiated coverage today on shares of Vivint Solar with a Perform rating, given recent management changes and the fallout from the failed takeout by Sunedison.
Rusch noted, “We believe that, while VSLR’s long-term growth potential within the residential solar market will be determined by its ability to raise capital at attractive rates, its low per watt cost structure will prove advantageous as it continues to build scale and expand its product offering through 2018, all of which position the company to benefit from a still underpenetrated North American solar installation market.”
“As VSLR waited for the SUNEQ transaction to close, the company clearly was planning for SUNEQ strategic resources to aid the business and lost focus. We expect management to bring a sharpened attention to operational execution and reducing cost of capital,” the analyst continued.
Out of the 6 analysts polled by TipRanks (in the past 12 months), 2 rate Vivint Solar stock a Buy, 2 rate the stock a Hold and 2 recommend to Sell. With a return potential of 57%, the stock’s consensus target price stands at $5.10.