Key Items for SolarCity (SCTY) Following Vivint Solar (VSLR) IPO Filing

Roth Capital comments on SolarCity (Nasdaq: SCTY) following a recent IPO filing by peer Vivint Solar, Inc. (NYSE: VSLR). Roth has SolarCity at Buy with a target price of $98.

Analyst Philip Shen noted the following six key takeaways for investors:

1. VSLR is roughly one fifth the size of SCTY (VSLR’s install base was 17% of SCTY as of 6/30/14) and operates nearly 100% residential. This compares with SCTY, which has had as much as 50% of its installations in some periods exposed to the commercial market, which has lower value. VSLR’s geographic exposure is concentrated in states with some of the richest economics, such as CA and HI (53% and 15%, respectively, of 2013 installations).

2. VSLR currently focuses nearly 100% on direct sales. Its overall sales and logistics model is based on canvassing neighborhoods in a systematic manner. SCTY only recently launched its direct sales efforts earlier this year.

3. VSLR and SCTY’s RV frameworks are quite similar. Both assume a 20 year contract period, 90% renewal, 10 year renewal period, pricing escalators, and a 6% discount rate. The main point of difference is SCTY includes MW booked in its RV calculation.

4. We believe the RV/W differences between the two companies are primarily due to geographic and installation mix. With no commercial exposure and concentration in CA and HI, VSLR had a cumulative RV/W of $2.39 vs. SCTY of $1.72 as of 6/30/14. On an incremental RV/W basis, however, our analysis suggests SCTY and VSLR are nearly at parity in H1’14 with $1.94/W vs. $2.10/W, respectively, despite SCTY’s greater exposure to commercial and less rich states.

5. SCTY may have the edge on installation costs. Our initial analysis suggests SCTY’s installation costs appear to be more attractive at $2.17-2.38/W vs. $2.65-3.17/W, respectively, in the H1’14 period.

6. While opex/W was higher for SCTY in H1’14, the company may have an advantage vs. VSLR vis-à-vis technology and government affairs. SCTY’s opex/W was ~95c/deployed W in H1’14 vs. 80c/installed W for VSLR.

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

SolarCity closed at $70.08 yesterday.

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