Amid news of merger with Tesla Motors, SolarCity stock is downgraded at Baird
In a research note issued today, Baird analyst Ben Kallo has downgraded SolarCity Corp (NASDAQ:SCTY) stock to a Neutral from an Outperform and has also slashed his 12-month price target to $25 from $37.
The downgrade comes on the back of the news regarding the San Mateo, California based solar power systems provider’s merger with the high-end electric car maker Tesla.
Yesterday, The Wall Street Journal reported that the two companies have reached an agreement whereby the car maker is set to buy the alternative energy company for a price which is less than what was proposed initially. Tesla’s acquisition of SolarCity comes on the heels of the aims Elon Musk has – to combine his upscale electric car and solar energy companies.
The deal between the two companies is all-stock and valued at about $2.6 billion. The shareholders of SolarCity would receive 0.11 share of Tesla, against a share of the solar energy company, which are valued at $25.83 each. Back in June of this year, the electric vehicle producer had proposed a range of $26.50 and $28.50 per SolarCity share.
Yesterday, Tesla CEO mentioned that he had no involvement in the decision making regarding the purchase consideration. If the deal valuation is approved by the shareholders, it would result in Tesla’s workforce being doubled to almost 30,000 employees and create a unique hybrid of transportation, power storage and now solar product offerings. The management at Tesla believes this would be the only integrated sustainable energy company across the globe.
While the deal has a lot to offer to Tesla, Baird analyst believes it is highly unlikely that the shareholders would approve the merger. He said: “Although SCTY has a 45-day go-shop period which could provide additional upside, we believe it is highly likely the TSLA and SCTY merger will go through, and are moving to the sidelines.”
Tesla is set to report earnings for the second quarter of this year tomorrow, after the market closes. The consensus estimate suggests a rise of 71% year-on-year, resulting in $1.64 billion revenue for the quarter. Additionally, the analysts still believe the company will be occurring a quarterly loss of 58 cents per shares.
20 Wall Street analysts provide coverage on Tesla stock; of them, seven analysts suggest a Buy, another eight analysts rate the stock as a Hold while the remaining advocate a Short.