Why This Analyst Just Added Vivint Solar To The 'Conviction List' As A Long

Vivint Solar Inc VSLR announced a strategy to restart the business momentum it had lost after the distraction of a proposed acquisition by Sunedison Inc SUNE.

Avondale Partners’ Michael Morosi maintained a Market Outperform rating for Vivint Solar, with a price target of $8. Terming the strategy for renewed business momentum as credible, the analyst added the stock to the Conviction List.

Credible Strategy

Vivint Solar’s restructuring strategy not only aims at refocusing the business on key geographies, but also reduces fixed costs, analyst Michael Morosi noted. The company plans to eliminate difficult roofs and small systems that are expensive on a per-watt basis, besides increasing the mix of capital-efficient cash and loan systems.

Management’s FY16 cost/watt target of $2.85-$2.95 “is not a layup,” Morosi wrote. He added, however, that the company had reached that level in the past with installations at a 20 percent lower run-rate than FY16.

While customer acquisition costs continued to decline across the industry, all the leading installers were imposing spending restraints, which made the residential solar business less competitive. The analyst further said that Vivint Solar had adequate cash on hand and debt to fund its FY16 growth plans without any equity issuance.

The company is expected to announce a mid-sized tax equity deal in the next couple of weeks. Morosi believes this will de-risk the company’s FY16 installation targets and offer additional financing runway.

Investment firm Blackstone, which continued to hold a 70 percent stake in Vivint Solar, may be tempted to increase its holding at the current share price level, the analyst noted.