SunEdison: Get Out While You Can

| About: SunEdison, Inc. (SUNEQ)


Management overreached by leveraging too much.

Management will continue to destroy shareholder value.

Cut your losses instead of waiting for an unlikely turnaround.

Not long ago, Sunedison (NYSE:SUNE) was the shining star in David Einhorn's portfolio. He first bought the stock around $15 per share and it eventually rose to $30 per share. As a result, many retail investors piled in, but were soon left holding the bag when it plummeted and declared bankruptcy.

For those who are still holding shares of SunEdison, this is the time to cut your losses and exercise prudent and logical investing. Before I go into the analysis, let me give you a brief overview of how the company went into bankruptcy.

Not to dissimilar to the Valeant debacle, SunEdison's downfall is related to overleveraging. It all began when it started to borrow vast amounts of money to grow faster. In 2014, SunEdison moved away from its core business in solar and purchased a wind developer First Wind. This should've been the first sign of trouble - when management moves outside of its expertise to try to buy growth.

This was accentuated when they tried to buy Vivint Solar, a rooftop panel installer. When this was announced the stock started to plummet and all the bugs came out of the woodworks. It couldn't complete billion dollar deals with its core business, was sued, and delayed its financial statements. This ultimately snowballed into the bankruptcy situation we're seeing today.

While the company reported assets of $21B and liabilities at $16B, I do not foresee the situation improving for shareholders to profit.

The glimmer of hope was David Einhorn. He could've replaced management for a quick turnaround if at all possible. In order for the situation to even improve in the first place, the management team that put the company in bankruptcy needs to be replaced. This obviously isn't going to happen. David Einhorn seems to have backed out (or even cut his losses) of the company and there have been no talks for a management team change.

As a result, I foresee management continuing to destroy shareholder value. Some proponents of the stock might argue that the company just needs some time. The thing is - SunEdison doesn't have time with the debt holders pressuring them.

Finally the last glimmer of hope that many investors are looking for is an acquisition. I do not foresee that given the current environment of low priced oil. There are already so many distressed opportunities for private equity investors in traditional energy. And for a strategic buyer, they have their own problems to worry about as low oil prices make it harder for them to operate. Just take a look at the Guggenheim Solar ETF.

As a result, I believe that a bag holder should sell to recover any portion of equity invested. Some money is better than 0.

Disclosure: I/we 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.

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