SolarCity (SCTY): 3 Triggers For A Short Squeeze - Raymond James

Yesterday, Raymond James analyst, Pavel Molchanov, took SolarCity (NASDAQ: SCTY) management on the road to meet with investors after the company cut guidance a week ago. During the trip, he identified 3 misconceptions that he thinks could lead to a significant short squeeze.

Concern 1 - "U.S. residential PV demand is disappearing". However, the percentage of U.S. households with rooftop PV is only 1% overall and 2% within SolarCity’s service territory. Other than Hawaii, the analyst can see no evidence of saturation.

Concern 2 - Financing is a struggle. SunEdison's fiscal crisis resulted mainly from out of-control acquisitions (not a SolarCity strategy). SolarCity successfully priced two securitizations year-to-date. Although the yields are higher than a year earlier, reflecting high-yield softness, the deals were completed.

Concern 3 - The 6% discount rate is not realistic. The last securitization was priced at 6.25%, and the Hancock deal at 8%. Looking at these two data points, one could conclude that 6% is too low.

The firm maintained a Strong Buy rating and price target of $50 on SCTY.

For an analyst ratings summary and ratings history on SolarCity click here. For more ratings news on SolarCity click here.

Shares of SolarCity closed at $20.50 yesterday.

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