SolarCity shares soared as much as 12 percent Wednesday after Tesla Motors made a $2.8 billion offer to buy the clean energy provider in pursuit of synergy. The stock later pared its gains, ending the day up just 3 percent.
However, SolarCity analysts on Wall Street had a mixed reaction to the offer.
Elon Musk, Tesla CEO and SolarCity chairman, made a too-low valuation at $27.50 per share since SolarCity has a "vast and valuable customer network which can be used by TSLA to cross-sell its own products and services," Guggeinheim analysts said in a Wednesday note to clients. They expect the bid to be scrutinized by shareholders.
Meanwhile, analysts at Stifel downgraded SolarCity shares to "hold" from "buy."
"The question is how do these probabilities compare with risks of reaching a definitive agreement and completing the transaction. If the transaction does not now materialize, we see it potentially creating a disproportionate downside for SCTY stock price," they said in a Wednesday note to clients.
That said, there is a probability that negotiations by boards could bring about temporary upside for SolarCity's stock, they added.
Musk owned 22.2 percent of SolarCity shares outstanding as of March 31, and his cousin and CEO Lyndon Rive owned 2.33 percent.
The San Mateo-based company traded near $24 per share Wednesday, but ended the session at $21.88. Its stock has fallen about 57 percent this year.
SCTY year to dateSource: FactSet