Story updated at 10 a.m. to reflect market activity.
SolarCity fell 3.8% to $76.94 in morning trading.
The firm maintained its $81 price target for the solar panel maker. The downgrade is a valuation call according to analyst Ben Kallo.
"SCTY has demonstrated its ability to maintain/gain market share in the N.A. residential rooftop market, but we believe the current valuation prices in much of its growth/execution," Kallo wrote.
"Furthermore, we believe risk vs. reward now warrants a Neutral rating. We would look for accelerated growth and continued system and financing cost reductions to become more constructive on the name."
Separately, TheStreet Ratings team rates SOLARCITY CORP as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate SOLARCITY CORP (SCTY) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been very high debt management risk by most measures."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The debt-to-equity ratio of 1.03 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, SCTY has a quick ratio of 0.59, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- SOLARCITY CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. For the next year, the market is expecting a contraction of 217.0% in earnings (-$1.78 versus -$0.56).
- Compared to other companies in the Electrical Equipment industry and the overall market, SOLARCITY CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for SOLARCITY CORP is rather high; currently it is at 65.47%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 6.90% trails the industry average.
- Net operating cash flow has improved to $100.01 million from having none in the same quarter last year. Since the company had no net operating cash flow for the prior period, we cannot calculate a percent change in order to compare its growth rate with that of its industry average.
- You can view the full analysis from the report here: SCTY Ratings Report