Goldman Reinstates Vivint Solar At Sell, $3 Target; Credit Suisse's Sentiment Is Similar

Goldman Sachs’ Brian Lee reinitiated coverage of Vivint Solar Inc (NYSE: VSLR) with a Sell rating and price target of $3.

Downside Risk

Lee believes that there could be 17 percent downside risk to the stock valuation, as compared to the 17 percent upside expected for Goldman Sachs’ coverage universe.

The analyst also believes that operational disruption from the failed acquisition bid by Sunedison Inc (NYSE: SUNE) has led to a meaningful weakening in Vivint Solar’s competitive positioning.

Related Link: Vivint Solar Says It's Suing SunEdison

Recovery & Cash Position

“Thus, despite leverage to the high-growth US rooftop solar space, we see an uncertain path to recovering lost market share, combined with near-term financing needs, driving our expectations for further stock downside,” Lee stated.

In addition, the company’s average quarterly cash burn has been $45 million, since it went public late 2014. Lee expects Vivint Solar to need near-term financing to fund operations.

The analyst also noted that the company has a minimum liquidity covenant of $25 million. “Remaining capacity on debt facilities provides some cushion, but we see increased risk of an equity raise in 2H16,” Lee pointed out.

Also, the company’s volume CAGR is expected at 16 percent through 2017, well below some of its peers, driven by turnover and lack of visibility into new tax equity funding.

“We expect Vivint to ramp spending near-term to reposition for growth and recover lost market share,” the Goldman Sachs report added.

Credit Suisse Agrees

Credit Suisse’s Patrick Jobin maintained a Neutral rating on Vivint Solar, while lowering the price target from $16.50 to $6.00.

Jobin mentioned that concerns regarding the stock were warranted, given that Vivint Solar “reported Q4 results that reinforced the uncertainty of the company's outlook after the breakup of its merger with SUNE.”

Volume Decline

While volumes declined sequentially once again during Q4, the company is likely to need to replenish its tax equity funding capacity, given that less than a quarter of capacity remaining and new bridge financing appearing to have “onerous” terms.

In addition, Jobin noted that headcount in the operations and S&M segments had declined 17 percent and 9 percent, respectively, since 2Q15, justifying concerns regarding the loss of human capital during a period when there was uncertainty regarding the acquisition by SunEdison.

“Given the difficult liquidity position and what may prove to be a lengthy re-building process,” the volume estimates for 2016 and 2017 have been reduced, while the EPS estimates for 2015 and 2017 have also been revised to reflect the lower volume expectations.

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