Following a Tesla (NASDAQ:TSLA) and SolarCity Corp (NASDAQ:SCTY) joint conference call, analyst Phillip Shen of Roth Capital gave his insights on the effects of SolarCity’s recent acceptance of Tesla’s acquisition offer.
Management is expecting to see $150 million in cost synergies spread out between lower CAC, lower installation costs and lower manufacturing costs. Tesla also expects to see revenue synergies. Although details surrounding these synergies were minimal, the companies mentioned that there are many possibilities for collaboration.
Shen had many other takeaways from the conference such as the reiteration of SCTY’s cash flow breakeven target for 2016 and how the combined company “could see a modest equity raise to bolster the balance sheet at some point.” Furthermore, management expects SolarCity’s loans/cash sales to be a bigger part of its business in the future. In terms of collaboration, Tesla and SolarCity will “pursue behind the meter storage opportunities in residential as well commercial end market” in addition to Tesla instituting its manufacturing principles into SolarCity’s factory in Buffalo. Using Tesla’s manufacturing principles SolarCity is hoping to “see a half order of magnitude improvement over the next best solar cell/module manufacturer.”
SolarCity recently downgraded its annual guidance to midpoint $950 million from $1,050 million. Shen believes that this cut could worry investors that SolarCity’s short-term business may be challenged by the acquisition.
Shen maintained his Neutral rating with a $19 price target, marking a 23% decline from current levels.
As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, the analyst has a yearly average loss of 16.3% and a 26% success rate. The analyst has a 37.5% average loss when recommending SCTY, and is ranked #3,993 out of 4,083 analysts.
TipRanks shows that out of the 17 analysts who rated SCTY in the last 3 months, 24% gave a Buy rating, 65% gave a Hold rating and 11% gave a Sell rating. The average 12-month price target for the stock is $29.27, marking a 18.41% upside from current levels.