Technology company SunEdison (SUNE) has outperformed the market handsomely this year with gains of close to 35%. However, SunEdison shares recently fell around 11% in a single day when the company announced that it is pulling out of a solar power project in India due to local equipment shortages and pricing concerns.
As reported by Bloomberg -
"SunEdison is giving up the 20-megawatt project it won in an Indian government auction in February on concerns that local cell makers won't be able to boost supply in time, Pashupathy Gopalan, managing director of South Asia and Sub-Saharan Africa, said in an e-mailed response to questions. Dropping the project may cost the St. Peters, Missouri-based company its 20 million rupee ($333,000) bidding deposit.
"Cell capacities are not easy to ramp up and build," said Gopalan, who estimates local cell factories need to double operational capacity to fulfill orders. Domestic panel makers also raised prices since bidding, he said. "The projects are not viable anymore."
Not a big negative
While this looks like a negative point initially, the truth is that SunEdison has seemingly made the right move by dropping an unprofitable project. Moreover, SunEdison is still going ahead with the 30-megawatt project that it had won in India, as Bloomberg reported. So, all is not lost for the company. In fact, the recent drop in SunEdison shares could turn out to be a buying opportunity going forward. Let's see why.
SunEdison remains positive about its prospects and projects strong megawatt growth in the long run. The company has a good number of projects in its pipeline, along with strategic initiatives such as signing an agreement with the government of Saudi Arabia and its investment company, Sanabil Investments to fund a feasibility study for a vertically-integrated photovoltaic (PV) solar manufacturing facility in the nation.
This project will cover most of the steps of crystalline silicon PV manufacturing from polysilicon through modules. SunEdison estimates an investment of approximately $6.4 billion in the project, which the company plans to raise through debt financing. Construction is slated to begin in 2017, ramping to 3 gigawatts (GW) annually. Hence, SunEdison anticipates substantial growth in solar PVs in the region that will help it increase its market share.
Strong prospects ahead
In addition, SunEdison has built a strong project financing facility with Deutsche Bank Securities, which will provide a total of $300 million for its various projects across the U.S. and Canada. SunEdison has, however, consumed the initial $150 million worth of funds for development and acquisition of new PV projects in the U.S. and Canada. Furthermore, SunEdison expects that the credit facility will be enhanced in the near future with more banks providing support.
SunEdison has seen strong growth in megawatt installations at a compounded annual growth rate of more than 90% since 2009. The company installed a record high 333 megawatts in the fourth quarter of 2013, and this trend is expected to continue going forward. SunEdison has close to 500 megawatts under construction that will possibly be complete at the end of first quarter of fiscal 2014. Moreover, the company expects significant demand for its projects in the U.S. and Canada, which perhaps will increase its market share.
SunEdison estimates a production run rate in the range of 200 megawatts to 250 megawatts for the current quarter. The company had retained a total of 127 megawatts last quarter, enabling it to create an additional value of $160 million for investors.
Valuation and conclusion
SunEdison currently doesn't have a trailing P/E since it is incurring a loss. However, SunEdison's forward P/E is promising at 39, considering that its earnings are expected to grow at a CAGR of 15% over the next five years. Hence, SunEdison seems to be making all the right moves and so, investors should definitely consider buying it on the pullback.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.