- SunEdison's project backlog is growing at a robust pace on the back of projects in different countries.
- SunEdison is making smart moves by retaining projects on the balance sheet in order to increase shareholder value.
- SunEdison is tapping more markets with acquisitions and joint ventures.
- SunEdison's earnings are expected to grow at a terrific rate in the next two years.
SunEdison (NYSE:SUNE) is on an outstanding run in 2014. The stock has gained around 85% so far this year, and it looks like it won't be running out of steam any time soon. Recently, Canaccord initiated coverage on SunEdison, and gave it a $30 price target, indicating an upside of around 25% from current levels. The company has got solid opportunity ahead due to the expected growth of the solar market, and it is trying the best to make the most of it.
Finding solid traction
SunEdison has seen significant improvement in its solar projects, with deployment of nearly 150 MW in the first quarter, and another 450 MW under construction. The company is experiencing strong demand for its diversified pipeline of projects, which it intends to deploy in the near future. SunEdison's project backlog is also moving in the right direction, increasing to 3.6 GW in the first quarter, up around 170 megawatts sequentially. The company has a total of 80 new projects in diversified markets such as the U.S., Japan, U.K., India, Latin America, and Canada.
Looking ahead, SunEdison sees robust long-term megawatt growth. Specifically, the company is concentrating on rapid growth at a high value per watt. It believes that these elements will help it increase shareholder value, which is why it has retained certain valuable projects on its balance sheet.
At the end of the first quarter, SunEdison retained approximately 240 megawatts, at a value of about $420 million. As the demand for solar energy projects is strong across the world, this retention will maximize retained value and net present value (NYSE:NPV) per watt, ultimately benefiting shareholders. SunEdison is committed toward maximizing retained value and the efforts will continue in the second quarter. In the second quarter, the company expects to sell approximately 60 to 80 MW at an average selling price of $2.85 to $3.15, and plans to retain 100 MW to 120 MW worth of projects.
In addition, SunEdison looks well-positioned with a diversified pipeline across diverse markets. According to management, 47% of its pipeline is present in North America, 27% in Europe and Latin America, and a significant 26% in emerging markets such as South Africa, the Middle East, and Asia.
Agreements and acquisitions to drive further growth
SunEdison is expected to benefit from strategic initiatives such as signing an agreement with the government of Saudi Arabia and its investment company, Sanabil Investments, to fund a study for vertically-integrated solar 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. In addition, SunEdison recently acquired a stake in Silver Ridge Power for around $178.6 million in cash. Silver Ridge Power is a solar power plant operator, and this move should help SunEdison strengthen its portfolio further. According to AP:
"The deal gives SunEdison, which makes, installs and maintains solar panels, joint ownership of Silver Ridge Power's plants. In all, SunEdison will have interest in 336 megawatts of solar power.
St. Peters, Missouri-based SunEdison will also provide operations, management and other services for Silver Ridge Power's projects."
Expanding into more markets to tap solar growth
SunEdison isn't finding much difficulty in securing financing for its projects. Recently, it closed a debt deal to finance the construction of a solar power plant in Chile. As reported by Marketwatch:
"SunEdison said Monday it closed on a $155 billion debt financing agreement with investors that included CorpBanca, a major Chilean bank, and the Inter-American Development Bank to build a 72.8 megawatt plant in the Antofagasta region of Chile.
The plant is expected to be one of the largest in the world, SunEdison said.
Electricity from the project, which has been named Maria Elena, will be fed directly into the Chilean electric grid, SunEdison said. The Belmont, Calif. company will own and operate the plant."
Thus, the solar company is expanding its presence across the globe and is coming up with impressive projects. Now, the solar industry is growing at a terrific pace, and it is important for SunEdison to possess a strong backlog in order to make the most of this growth. According to a report:
"Solarbuzz recently reported that world solar PV power capacity grew by a record 9,000 megawatts (NYSE:MW) 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."
Hence, SunEdison has strong prospects going forward, and analysts seem to have recognized the same. This year, the company's bottom line is expected to increase 47%, followed by 109% next year. So, even though the stock has appreciated at a solid rate this year, it still has more upside in store. As such, investors should continue holding on to SunEdison as it can deliver solid growth in the long run, keeping in mind the industry's growth and SunEdison's own moves.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.