Barclays downgraded its rating on SolarCity (SCTY) to Underweight, the equivalent of a sell rating, as the firm believes that weaker consumer credit fundamentals and higher interest rates could hurt the company.
WHAT'S NEW: Barclays analyst Jon Windham noted that credit card issuer Synchrony Financial (SYF) on June 14 predicted that its net charge-off rates would increase by 0.2-0.3 percentage points over the next year. Given this trend, investors are likely to become more worried about credit quality and those heightened concerns could weigh on SolarCity's stock price, the analyst stated. Additionally, Barclays expects the Fed to increase the benchmark interest rate in September, and higher rates make SolarCity less attractive, Windham contended. SolarCity's sensitivity to financing costs and the long-term nature of its consumer lease portfolio cause it to be significantly affected by rate increases, the analyst explained. Windham kept his price target on SolarCity unchanged at $20.
WHAT'S NOTABLE: Windham continues to identify SolarEdge (SEDG), which develops solar monitoring products, as his favorite name in the residential solar space. Concerns over the strength of the U.S. residential solar market will limit the stock's ability to rise in the near-term but SolarEdge continues to be bolstered by a strong balance sheet and growing market share, as well as a good balance between leases and system sales, according to Windham. The analyst cut his price target on SolarEdge to $28 from $35 but kept an Overweight rating on the shares.
PRICE ACTION: In late morning trading, SolarCity climbed about 3% to $21.92 and SolarEdge advanced 2.3% to $21 per share.
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