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No. 1 residential installer SolarCity ( SCTY ) abandoned its MyPower loan program after overestimating the number of customers qualified for the Investment Tax Credit on solar, JPMorgan Chase analyst Paul Coster wrote Tuesday. Coster downgraded SolarCity stock to neutral from an overweight rating and slashed his price target to 29 from 44, reflecting the firm’s “elevated” risk in 2016. Intraday on the stock market today , SolarCity stock toppled 5.2%. “We still believe the stock is undervalued,” Coster wrote in a research report. “However, risk is currently elevated, and business model uncertainty will weigh on the stock in 2016.” SolarCity is toeing the line between development company and power company. The tricky combination has played out in “poorly expressed GAAP numbers,” Coster wrote. He ticked off SolarCity’s transgressions. Over the last year, SolarCity launched and then withdrew its MyPower loan program, introduced and then de-emphasized a cash available for distribution (CAFD)-like metric, and amended its methodology for examining megawatts installed vs. deployed. “Mostly, these changes made sense to us, but the complexity and flux make it difficult to bring new money investors into this stock,” he wrote. SolarCity Worse Off Than Peers To that point, SolarCity is already driving off current investors. Since Dec. 17 — the day before Congress extended the ITC — SolarCity stock has fallen 68%, while IBD’s 23-company Energy-Solar industry group has dropped 32% over the same period of time. Ongoing net-metering headlines have only fueled the incineration, Coster wrote. Days after Congress extended the ITC by five years, Nevada regulators cut payments to solar customers for excess energy fed back into the grid. Earlier this month, the Nevada Public Utilities Commission voted against grandfathering existing solar customers under the previous rate scheme. “Encouragingly, California’s PUC has already approved a favorable plan for the solar industry, extended into 2019,” he wrote. But whether that will be enough to mitigate the “headline risk” remains to be seen. And SolarCity’s discontinued MyPower plan prompts further customer base questions, Coster wrote. CEO Lyndon Rive told GreenTechMedia.com on Monday that many customers couldn’t qualify for the ITC. “In hindsight, I definitely underestimated that,” he said. “I underestimated the success we’ve seen, which is fantastic.” Growth Hits Stalling Point SolarCity’s customer base isn’t solely wealthy households typically associated with solar panel investments, Coster wrote. And that could be a problem. “We believe new customers (with) apparently good credit (scores) at the lower end of the income spectrum may be at some risk for slow-pay or default in the event of an economic downturn,” he wrote. Meanwhile, SolarCity’s growth is slowing. During Q4, SolarCity installed 272 MW , which was up 54% vs. the year-earlier quarter but missed earlier guidance for 280 MW to 300 MW. SolarCity blamed its exit from Nevada for the miss. Fellow residential installer Sunrun ( RUN ), too, left Nevada upon the PUC vote in December. Although SolarCity reiterated 2016 guidance for 1.25 gigawatts in installations, up 44% year over year, that implies “re-acceleration and a back-end-loaded year — a risk,” Coster wrote. First Solar ( FSLR ), the largest stock by market cap in IBD’s Energy-Solar industry group, was down 4.5% to near 61 in afternoon trading, ahead of its after-the-close earnings report. Scalper1 News
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