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Summary

  • SunEdison is making a number of impressive moves to grow the business, a fact that reflects in its recent results.
  • SunEdison's decision to retain more projects should help the company create long-term value for shareholders.
  • Prospects in the solar industry are also quite bright, which means that SunEdison has strong tailwinds behind it.
  • A strong pipeline and solid earnings growth projections make SunEdison a long-term buy.

Solar company SunEdison (NYSE:SUNE) has been soaring in 2014. The stock has gained an impressive 52% so far, but the journey hasn't been smooth. SunEdison has suffered a couple of major setbacks on the way.

A difficult journey but the right moves

First was when the company announced that it is pulling out of a solar power project in India, but SunEdison took such a decision because that particular plant wasn't feasible anymore and would have hurt the company's margins.

Next, when SunEdison posted its first-quarter results in May, it reported a wider-than-expected loss. However, this was because the company decided to retain a higher volume of solar plants than what it had initially planned in order to drive additional value for shareholders going forward.

So, SunEdison has been making a number of right moves to grow its business, a fact that's evident in its quarterly results. For example, in the first quarter, SunEdison reported non-GAAP revenue of $577.6 million, up from $431.3 million in the year-ago quarter. Moreover, the company was able to reduce its loss on a sequential basis, posting non-GAAP fully diluted loss per share of $0.25 in the first quarter as compared to a fully diluted loss per share of $0.48 in the fourth quarter.

The road ahead

Going forward, the company expects its performance to improve further on the back of its impressive strategies. SunEdison's project completions are going in line with its guidance metrics. It has grown its megawatts at a rate greater than 90% per year since 2009. Also, in the first quarter, it completed 150 megawatts of solar projects, in line with its target. SunEdison also secured two important debt facilities in the first quarter, which will help it grow through the year and allow it to continue to maximize value through retaining projects.

Currently, SunEdison has more than 450 megawatts under construction, and it is seeing significant demand in the market for its projects. Moreover, the company's diversified pipeline has grown and now stands at 3.6 gigawatts, up by about 170 megawatts from last quarter.

Going forward, SunEdison plans to optimize value per watt and increase shareholder value by retaining certain value projects on the balance sheet. During the first quarter, it retained 74 megawatts on its balance sheet, in addition to the 127 megawatts it retained in the fourth quarter. By holding the projects, SunEdison is retaining more value, so it retained megawatts above its guidance during the quarter. Cumulatively, SunEdison has retained a total of 240 megawatts worth of projects.

A strong pipeline and construction activity

The company is focusing on three business elements that will enable it to create more value: rapid growth, high value per watt, and a strong balance sheet. During the first quarter, it retained projects in order to maximize value and NPV per watt. Additionally, construction activity for new projects remained strong, with over 460 megawatts under construction at the end of the quarter. It added about 80 new projects in diverse markets, such as the U.S., Japan, the U.K., India, Latin America, and Canada, to its pipeline.

Moreover, SunEdison's pipeline is well-diversified, with 47% in North America, 27% in Europe and Latin America, and 26% in emerging markets such as South Africa, the Middle East, and Asia. Its pipeline is also diversified by project size. About 16% of its pipeline consists of projects that are generally smaller than 10 megawatts; mid-sized projects between 10 megawatts and 50 megawatts represent 34% of its pipeline; projects between 500 and 100 megawatts account for 28%; while products over 100 megawatts were 22% of the pipeline.

Solar industry prospects will help SunEdison's growth

SunEdison's efforts to maximize retained value will continue in the second quarter as it commits more resources to building and holding its projects. This is a smart move from the company, as the solar market is expanding rapidly, which might result in more value for its retained projects in the future as demand increases.

Prospects of the solar industry remain strong. As reported by Solar Love:

Solarbuzz recently reported that world solar PV power capacity grew by a record 9,000 megawatts in the 1st quarter of 2014. However, that record isn't likely to last long. The solar market research company forecasts that every quarter this year will be higher than the one before it.

At the end of Q1 2015, Solarbuzz forecasts that the 12-month total will be over 50,000 MW! For 2014, Solarbuzz is maintaining its forecast of 49,000 MW. However, it wouldn't be surprised to see the world surpass that.

Meanwhile, another market research firm, IHS, just raised its 2014 forecast to 46,000 MW following the strong 1st quarter. That would equal a 22% increase in the market compared to 2013, IHS notes. The main countries driving global installments during 2014 are widely projected to be China and Japan.

However, solar growth in Japan and the UK was particularly responsible for the record 1st quarter, Solarbuzz notes. "These two countries combined accounted for more than one-third of global solar PV demand in Q1'14 and set new quarterly records for PV deployed."

Hence, SunEdison should continue benefiting from the growth of the solar industry, especially because the company is plying its trade in almost all the regions that are expected to report terrific growth in the future.

Fundamentals and projections

SunEdison looks quite expensive at a forward P/E of 140. However, investors should keep in mind that it is a high-growth stock that's expected to grow at a rapid rate going forward. SunEdison's earnings are expected to grow almost 60% this year, followed by a 140% jump next year. Both these metrics are way above the industry estimates. Also, SunEdison has a PEG ratio of just 0.08, which is again well-below the industry average of 1.48, indicating terrific earnings growth going forward.

Conclusion

SunEdison's prospects look very strong. The company is making the right moves by retaining its projects so that it can benefit from the rapid growth that the solar industry is experiencing. Moreover, analysts are also quite hopeful of a strong performance by SunEdison going forward, which is another reason why the stock can scale even greater heights in the future.

Source: Up 50% In 2014, SunEdison Still Has More Upside