SolarCity Shares Are Soaring

SolarCity shares are up 6.5% this morning after Deutsche Bank initiated coverage with a "buy" rating and a $90 price target.

In their note, Deutsche Bank's Vishal Shah, Jerimiah Booream-Phelps, and Susie Min write that the firm, which installs leased rooftop solar panels that can generate electricity below utility rates, possesses enormous growth potential:

We estimate the company's market penetration is ~0.2% in existing markets, which implies considerable room for expansion within current markets and into new markets. We believe SCTY's cumulative [megawatts] deployed can reach at least ~3GW by 2016 which would still imply only ~1% market penetration. Our 2016 estimates are likely conservative as the company has a target to reach ~1M customers implying ~6GW deployed by mid 2018 timeframe.

The firm recently became the first to issue solar-backed securities. The debt is paid back from revenue generated by electricity sales. It plans to issue another round of the debt, and DB says investors are "very interested" in them. "SCTY recently priced first ever ABS deal at 4.8% and suggests a potential for more follow on offerings, which could help lower overall financing costs as investors become more comfortable with the concept," they write.

Since their IPO in December 2012, SolarCity, a solar services firm chaired by Elon Musk and run by Musk's cousin, has gained 480%. We profiled the firm as a survivor of The Great American Solar Cull, which saw the number of domestic solar companies, both in manufacturing and services, contract and merge due to cost pressures.

Here's SolarCity's stock chart: