Today’s biggest news is coming from electric car giant Tesla Motors Inc (NASDAQ:TSLA), which announced its offer to acquire solar panel installation company SolarCity Corp (NASDAQ:SCTY) in a stock deal worth as much as $2.8 billion. Below, analysts discuss the aspects of the deal and its implications on both companies.
Raymond James analyst Pavel Molchanov commented, “Historically, the stock has traded at more than 2x and even 3x NPV, and while that is probably not realistic for the foreseeable future, a takeout multiple of (at best) 1.35x NPV does not look very appealing […] Because this stock is (as always) a special situation, there is no objective way to gauge what is the right multiple, but we think that a $30+ deal value would be more appealing, both “optically” and fundamentally.”
“Tesla’s stated motivation for the merger is to become “the world’s only vertically integrated energy company offering end-to-end clean energy products to our customers”. In a day-to-day sense, there are not many direct synergies between installing/financing residential PV systems and selling electric vehicles. There are some, such as the existing collaboration between Tesla and SolarCity with regard to storage. But clearly the EV value chain and the solar value chain are not about to become one and the same. Tesla seems to be trying to become a kind of clean tech supermarket, across multiple verticals,” the analyst continued.
Molchanov reiterated a Buy rating on SolarCity, with a price target of $50.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Pavel Molchanov has a yearly average return of 0.0% and a 50.0% success rate. Molchanov has a -1.0% average return when recommending SCTY, and is ranked #2478 out of 3984 analysts.
Potter opined, “By attempting to produce a full suite of consumer products that produce, store, and consume energy, TSLA is demonstrating once again how ambitious its long-term strategy really is […] Big-thinking investors will probably like this approach, as it shows why TSLA’s market cap could eventually far exceed “plain vanilla” peers in the automotive industry – none of whom have the guts to expand outside their own industry, in our view. However, with the Model 3, TSLA is already subjecting itself to one of the most ambitious (and probably one of the least achievable) production ramps in automotive history. Integrating SCTY wouldn’t make this process any easier. We remain on the sidelines.”
According to TipRanks.com, analyst Alexander Potter has a yearly average return of -10.5% and a 38.5% success rate. Potter is ranked #3647 out of 3984 analysts.
Out of the 21 analysts polled by TipRanks (in the past 3 months), 10 rate Tesla stock a Buy, 5 rate the stock a Hold and 6 recommend to Sell. With a return potential of nearly 22%, the stock’s consensus target price stands at $268.90.