Analysts weigh in today on U.S. solar leader SolarCity Corp (NASDAQ:SCTY) and fuel cell maker Ballard Power Systems Inc. (USA) (NASDAQ:BLDP). The analysts reflect on SolarCity’s recent investor meeting, and Ballard’s sale of telecom backup power assets.
Raymond James analyst Pavel Molchanov weighed in today on SolarCity, after hosting a series of investor meetings with management. The analyst addressed major pushbacks that he has been hearing from investors of late, and explained why he remains convinced that the stock is oversold and ripe for a bounce/short squeeze.
Molchanov wrote, “There is no denying that SolarCity’s new 2016 growth target of 15-26% marks a slowdown. Market share is not the issue; the real pushback is about structural headwinds with the overall market. One version of the argument claims the market is saturated, even though the percentage of U.S. households with rooftop PV is merely 1% […] The second argument is that utilities are successfully blocking rooftop PV, forcing installers to spend even more on customer acquisition. There is some truth here, since utilities are routinely fighting rearguard actions on net metering – but they have lost the bulk of these fights, with the exceptions of Hawaii and Nevada.”
In light of recent financial concerns, Molchanov noted, “SolarCity has had no problem raising all the project-level capital it needs. Despite a high-yield landscape that has clearly seen better days, SolarCity successfully priced two securitizations year-to-date. Although the yields are higher than a year earlier, reflecting high-yield softness, the deals got done. Just this month, SolarCity delivered on its promise of an asset monetization with John Hancock. The IRR of ~8% was, in our view, quite solid under the circumstances: a first-of-its-kind deal, and not in the best market conditions. The 8%, by the way, is not a “law of nature” for the future: we would expect the yield to compress as this type of financing becomes more mainstream over time.”
Molchanov reiterated a Buy rating on SolarCity shares, with a price target of $50, which represents a potential upside of 141% from where the stock is currently trading.
Is it worth listening to this analyst? Check Molchanov’s historical performance and ranking Here.
Out of the 18 analysts polled by TipRanks, 8 rate SolarCity stock a Buy, 9 rate the stock a Hold and 1 recommends Sell. With a return potential of 72.3%, the stock’s consensus target price stands at $35.79.
Ballard Power Systems Inc. (USA)
FBR analyst Carter Driscoll weighed in on Ballard Power, after the fuel cell maker announced that it had reached an agreement to sell certain assets of its methanol telecom backup power business to Chung-Hsin Electric & Machinery Manufacturing Corp. (CHEM), a Taiwanese power equipment OEM, for $6.1 million assuming earn-outs are reached.
Driscoll commented, “CHEM has been a partner of Ballard’s for several years, and we expect the transition will be seamless. Ballard has discussed exiting the business, selling assets, or reducing investment, and we believe this transaction lowers its investment while still providing some revenue, although the potential margin contribution is unclear at this point. In our model, we had phased out revenue from this segment starting in 3Q16. The transaction is expected to close during 2Q16. We view the transaction as a solid move to monetize assets and reduce costs in a segment that had shown inconsistent growth during the past few years.”
Driscoll reiterated a Market Perform rating on shares of Ballard Power, with a price target of $1.5, which represents a potential upside of 9.5% from where the stock is currently trading.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Carter Driscoll has a yearly average return of -19.6% and a 21.3% success rate. Driscoll has a -34.6% average return when recommending BLDP, and is ranked #3777 out of 3910 analysts.
Out of the 4 analysts polled by TipRanks, 2 rate Ballard Power stock a Buy, while 2 rate the stock a Hold. With a return potential of 35%, the stock’s consensus target price stands at $1.85.