SolarCity's 25% Selloff Might Be A Bit Extreme, Says Morgan Stanley

• SolarCity Corp SCTY shares have plunged 46 percent since January 11.
• Morgan Stanley’s Stephen C Byrd maintained an Overweight rating for the company, with a price target of $104.
• Although the company’s results missed expectations, the pullback in shares appears overdone, Byrd stated.

SolarCity reported 4Q15 revenue of ~$115 million, ahead of its guidance of $100-$108 million. Analyst Stephen Byrd pointed out, however, that the company modestly missed its MW installation target of 280-300MWs, completing merely 272 MW installation during the quarter.

While such a modest miss would typically not have a significant impact on SolarCity’s shares, management had already lowered its MW target for 2015 guidance in October. Hence, the miss may have triggered investor concern around management's ability to achieve future targets.

Byrd added that management kept the 2016 MW guidance of 1,250 unchanged, despite indicating an intention to increasing spend on sales and marketing. Moreover, the 1Q16 guidance of 180 MWs was weak, which means that the company would need to ramp up aggressively during the rest of the year in order to meet the 2016 guidance.

Despite the disappointing update, the correction in SolarCity’s shares appears to be “significantly overdone,” the analyst said, citing the residential solar market’s attractive long-term fundamentals and that the company’s stock valuation already reflected “highly bearish prospects prior to the update.”

“Moreover, while the Nevada net metering decision in late 2015 was undoubtedly a negative, we note that grandfathering in the state may be reinstated when the commission meets this Friday -a development that would address the aspect of the decision that most impacted SCTY's recently elevated securitization costs,” the Morgan Stanley report noted.

“Even before factoring in the after-market move, SCTY is not pricing in any growth post 2016 on our math -an outcome we view as highly unlikely,” Byrd commented.