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How Do Analysts Rate SolarCity ahead of 3Q16 Results?

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Analysts’ ratings

Of the 15 analysts covering SolarCity (SCTY) stock, one analyst gave the company a “buy” rating, and 13 analysts rated it a “hold.” One analyst gave SolarCity a “sell” rating.

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SolarCity’s consensus estimates

Since the release of SolarCity’s 2Q16 results, three of the 15 analysts covering the stock lowered their price targets, while one analyst revised the price target up. As of October 21, 2016, SolarCity had a consensus 12-month target price of $23.56. This indicates a near 18% return potential considering a $19.99 closing price on October 21, 2016.

Analysts expect SolarCity to report muted 3Q16 earnings compared to 2Q16. They project a nearly 13% decrease in consolidated revenue on a quarter-over-quarter basis and a nearly 43% increase compared to the revenue in 3Q15. SolarCity is in its growth phase and it’s a rapidly growing company. Therefore, it’s reasonable to compare quarter-over-quarter data rather than year-over-year results.

Also, analysts expect reduced gross profit and gross profit margins on a quarter-over-quarter basis, which is in line with the company’s lower MW (megawatt) installation guidance for 3Q16.

At the end of 2Q16, SolarCity’s cost per watt deployed was lower than Sunrun’s (RUN) cost per watt deployed but higher than that of Vivint Solar (VSLR). SCTY’s per watt installation costs stood at $3.05 compared to Sunrun’s $3.67 and Vivint Solar’s $2.94.

The majority of analysts still recommend a “hold” for SolarCity. The recommendation was primarily due to the company’s leading market share in the residential solar sector (TAN) and diversification in its business.

Notable recommendations

Among the 15 firms covering SolarCity stock, Morgan Stanley (MS) gave an “equal weight” recommendation on the stock with a price target of $24 on August 2, 2016. UBS is “neutral” on the stock with a price target of $19 assigned on September 7, 2016. However, Barclays gave an “underweight” recommendation on the stock with a price target of $20 assigned on September 1, 2016.

In the next part of this series, we’ll analyze analysts’ 3Q16 revenue estimates for SolarCity. We’ll find out whether these recommendations are conservative or optimistic.

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