Solarcity Corp is dancing around the bear territory and the vultures are circling about, waiting to move in on its carcass. The move by Elon Musk’s Tesla Motors to acquire the solar company has not done much to arrest the bearish thesis on the stock. The shares of Solarcity are down 53.8% in the year-to-date period and the stock is down 5.79% in the last one month. Now, Solarcity is adopting cost-cutting measures to save the firm and the CEO is not immune from cuts.
SolarCity Cut Costs, tear down CEO Pay
On Wednesday, SolarCity reported that it wanted to cut its operating cost in order to shed some of the dead weight on its finances. The more interesting thing about the proposed cost-cutting measures is that that members of its management team will lose a large part of their salaries. The firm’s CEO Lyndon Rive and his brother Peter Rive who is the firm’s CTO thinks that they can ease some of the financial burdens on the firm by taking pay cuts.
Now, the firm’s CEO and CTO will reduce their annual salaries to $1 down from $275,000. The duo of Lyndon Rive and Peter Rive now joins the ranks of senior execs who are paid a symbolic $1 annual salary. The firm is starting a much-needed restructuring effort in order to ensure a seamless integration when Tesla Motors completes its acquisition process.
In a Form 8-K filing with the SEC, the firm revealed that it would have to pay out between $3M and $5M on severance benefits as part of its restructuring efforts. Hence, the move by leadership to take pay cuts is symbolic to show all the employees that the potential layoffs are necessary. Pavel Molchanov, an analyst at Raymond James observes that the pay cut is “a symbolic gesture, but it’s appropriate.”
The solar energy industry is experiencing an urgent need for restructuring and SolarCity is making a smart move not to swim against the tide. Earlier this month, SunPower Corp CEO Tom Werner announced a voluntary pay cut. In his words during the Q2 earnings call, “I’m ultimately responsible for the company’s performance and have therefore decided that … I will reduce my cash salary and bonus to $1 for the balance of the year… I am confident that our performance will improve and the shareholders, including me, will be rewarded.”
How will Wall Street respond to SolarCity’s exec pay cut?
The shares of SolarCity closed down 0.72% to $23.59 per share yesterday and Wall Street has not been able to respond to news the pay cut. Nonetheless, analyst outlook on the stock provides an indication of what to expect the stock going forward. The consensus median 12-month price target of 13 analysts on the stock stands at $25.00 to suggest a 5% upside on the stock. Interestingly, 4 out of the equity research firms have a strong buy rating on the stock while 9 research firms have a holding rating on the stock.
More so, analysts at Raymond James recently gave the stock a “market perform” rating in a research note that was sent to investors on August 2. Analysts at Robert W. Baird have a “Neutral” rating on the stock. However, analysts at Credit Suisse have downgraded the stock from an “Outperform” rating to a “Neutral” rating.