$SCTY,...SolarCity +2.4%; BofA reiterates $95 target, sees many catalysts
Believing "numerous catalysts" exist for the next 6-9 months, BofA/Merrill (Buy) is holding onto its $95 SolarCity (NASDAQ CTY) target (71% above current levels).
Among the potential catalysts: 1) Clarity on California's solar retail rates and net metering policies. 2) Improved booking/installation mix leading to better retained value. 3) The arrival of 2016 installation guidance (possibly in Q4). 4) The "emergence of a cash flow oriented view of [SolarCity's] operating systems."
The firm values SolarCity's existing operating business at $40/share. It assigns a $55/share valuation to its solar development ops, which was forecast to deliver 15.4GW of installations from 2018-2024. BofA sees SolarCity ending 2016 with 3.1GW of cumulative leased installations that will respectively produce $355M and $200M in unlevered and levered cash flow.
Also: Though admitting Arizona's policies are a setback - SolarCity has sued a local utility for placing ~$50/month in surcharges on new solar installations - BofA notes "constructive regulatory frameworks" have emerged elsewhere. SA author Simple Investment Ideas argued yesterday Arizona-like utility charges won't hold up long-term.
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