SunEdison (SUNE) operates primarily within the technology sector, with its product lines being split into two major segments, i.e. its semiconductor business, and its energy solutions business. Within its semiconductor business, it manufactures different kinds of silicon wafers, and within the energy solutions that it provides, SunEdison offers services that at the same time integrate the design, installation and maintenance of solar power systems. Along with that, Sun Edison also provides an option for financing of the solar power systems and operation of the same system as well.
SunEdison has seen a recent spike in its share price that has been the highest one day climb (15.71%) year to date. This sudden climb occurred as a result of an announcement to spin off its semiconductor business by SunEdison. SunEdison closed at a share price of $7.40 on the 28th of August with a $0.03 per share rise from the previous closing. The stock is currently priced at 13.19x of its future earnings, and figuratively, still seems undervalued and one might expect its price to further increase in the future.
The solar power industry
The solar power industry has attracted a lot of attention since the rise in oil prices, and hence a likely rise in demand for solar power, since consumers have a propensity to move toward cheaper power sources. Also, China plans to expand its solar capacity, which means an increased demand for solar panels and hence a decline in the oversupply of solar panels. Not only China, but photovoltaic installations are expected to reach 35 Gigawatt, growing at a double digit rate over the current year.
Over the past, solar panels and related products have seen a decline in price pertaining to the oversupply of these products due to an increase in manufacturing capacity, which has affected solar companies and their revenue generation. Moreover, subsidies on renewable energy also saw a reduction which further led to a decline in demand. However, many see solar power as the energy source of the future as it is one of the most economic and efficient forms of renewable energy, and thus this industry could see a lot of growth in the future.
Sun\Edison's solar power business has been a major source of revenues and profits for the company, generating almost twice as much revenue as compared to that generated by its semiconductor business annually. Even though its semiconductor business has generated more than half of the revenue for the company in the second quarter this year, it still was a cause of a $5 million loss for the company against a $162 million contributed to profits by the solar business the previous year.
SunEdison has decided to spin off its semiconductor business by selling off a portion of its share in the company. The company will push an IPO in the beginning of 2014. Investors have viewed this as a very positive decision for the company in that it will enable SunEdison to focus its attention on the production of solar energy products or in other words photovoltaic products. The solar power industry is still going through infancy and has huge growth prospects in the future. Thus if the company focuses all its attention on the R&D and production of solar energy products, the company itself could experience a great deal of growth in the years to come.
Moreover, the semiconductor business is less profitable for SunEdison than the solar power business, and holds lesser growth prospects for the company. Also, the separation of the two businesses would enable both to concentrate on generating revenues and profits for their respective companies and not for a collective company which results in the entire company suffering at the hands of losses made by a single business.
SunEdison has been reporting negative earnings for the previous two years. However, its losses have decreased from 2011 to 2012. However, a very encouraging factor is its EPS which has experienced an annual growth of 90.28% as compared to an industry average of -17.5% which positions SunEdison as a strong company when it comes to growing earnings for its shareholders. This is one of the major factors for the growth of its share price through the current year, and has the potential to further drive its share price up in the future.
SunEdison has great growth potential pertaining to the rise in demand for solar energy, and spinning off the semiconductor business would further enable it to concentrate on developing its solar business. The industry is still in its infancy and there is a multitude of small companies operating in the solar power industry. As the industry matures, the fittest would survive while the players that do not act prudently would be eliminated from the competition. SunEdison thus needs to focus on generating revenues as well as cutting costs related to the enterprise. Competition in the industry is tough and thus the company needs to keep its eyes open in order to remain ahead of its competition.
In a nutshell, the company has so far yielded good performance, apart from a few glitches in its earnings that it needs to control in order to remain profitable in the future. The semiconductor business spin off could be a very good decision for the company as it would enable the company to focus on its earnings and growth. SunEdison's stock thus far is a good buy and could yield profits for those planning to hold for the long run.