Baird Names SolarCity Favorite Pick in 2014, Buying Opportunity Next Week

In a report published Thursday, Baird Equity Research analyst Ben Kallo reiterated his Outperform rating on SolarCity SCTY and raised the price target from $71.00 to $81.00. Baird named SolarCity as its favorite pick for 2014. Kallo updated Baird's NPV model to include higher MW deployments in 2016 and discounted cash flows to YE: 2014. The analyst noted that SolarCity opened 10 operating centers in Northern California and is expected to meet 2014 guidance of 475 MW-525 MW. Baird added that SolarCity had approximately 26.2% of the U.S. solar market in 2Q13, a higher percentage than the combination of the next eight competitors. Kallo commented that the company is expecting an approximate 80% growth at the midpoint of 2014. Based on the increasing demand, Baird forecasts that residential and commercial markets will grow 20% and 13.8% y/y, respectively. The analyst reported that SolarCity should capture additional market share through its financing options and scale. Kallo also expects "further reductions in SCTY's financing costs as it brings additional asset-backed securities to market. Additionally, SCTY is exceeding its cost reduction road-map targets and should see lower labor costs/watt with the ZEP racking system." The analyst reminds investors that the lock-up period for approximately 51 million shares expires on January 14. This weakness from the pressure on shares, could allow a buying opportunity. SolarCity closed at $66.18 on Wednesday and shares have traded as high as $69.91, up 5.636%, following Baird's note.