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The SolarCity Upside Call for Over 30% in Gains

Jon C. Ogg

SolarCity Corporation (SCTY) is seeing its shares surge on Thursday due to very positive analyst coverage. The firm making the call was Robert W. Baird, upgrading the solar roof systems installer up to Outperform from Neutral. What is interesting here is that the firm only initiated coverage of SolarCity back in mid-September with a cautious Neutral rating.

Baird's one-year price target for SolarCity was raised up to $71 from $50. This represents a gain of 31% from Wednesday's closing bell price. When looking backwards to see where the stock was then versus now, SolarCity shares closed at $35.20 the day before the firm initiated coverage and the stock closed at $36.40 on the day the analyst rating of Neutral was assigned.

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Shares closed at $53.92 yesterday and had traded all the way up to as high as $65.30 as recently as November 4 before earnings brought the stock back down to earth.

We would point out that we recently named SolarCity as one of the five most likely long-term solar survivors. Our own issue is that even with all of the lower solar panel prices, SolarCity is not expected to make money in 2013 nor in 2014. This is puzzling when you consider that analysts are expecting its sales to grow by about 61% up to $256.6 million in 2014. We also noticed an increase in the short seller volatility in solar stocks.

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It seems likes Baird was hoping and waiting for a pullback to make the upgrade, and the post-earnings report selling gave it that chance. SolarCity has been public less than a year and the Elon Musk company's trading range since the initial public offering has been $9.20 to $65.30.

Baird's price target of $71 is just shy of the street's highest price target of $75. Investors and traders went for the bait here, because the stock is up over 5% at $56.75 on more than 6 million shares in mid-afternoon trading on Thursday versus a normal full day's volume of 4.5 million shares.

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