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Street defends SunEdison amid plunge; YieldCos in focus

Nov. 10, 2015 7:09 PM ETSunEdison, Inc. (SUNE) StockTERP, GLBL-OLD1, SUNEBy: Eric Jhonsa, SA News Editor21 Comments
  • SunEdison (SUNE) closed down 22% after its Q3 results, mixed guidance, and earnings call commentary failed to allay liquidity and balance sheet fears. Avondale Partners downgraded the hedge fund darling to Market Perform, but others on the sell-side defended the company.
  • "Seems like the tail wagging the dog," writes Credit Suisse's Patrick Jobin (Outperform rating, $25 target). He thinks a lack of guidance for the TerraForm Power (TERP -21.1%) and TerraForm Global (GLBL -4.5%) YieldCos is weighing, as is SunEdison's Q/Q pipeline decline, news TERP is investing in warehouse financing vehicles with subordinated equity, disappointment no restructuring of the Vivint Solar deal was announced, and fears additional acquisitions are possible.
  • Nonetheless, Jobin considers Q3 results strong, and notes SunEdison beat Credit Suisse's volume and margin estimates. He adds the company reiterated its 2016 volume and cash-generation guidance on the earnings call (transcript), and provided additional detail about its warehouse structures.
  • Deutsche's Vishal Shah (Buy, $28 target): "Combination of perceived increase of complexity of the core business along with TERP's involvement in the warehouse equity financing have been creating pressure on shares today, in our view. We acknowledge that investors may need a few quarters of proven execution and signs of cash flow improvement in order to get constructive on shares. That said, sentiment is near record lows, devco margins are improving and the core business should start generating cash from 2H16."
  • On the call, CEO Ahmad Chatila stated SunEdison is responding to YieldCo market turbulence by "shifting our portfolio approach from one that dropped nearly all projects to yieldcos and maximized long-term value creation to one that is flexible with a more balanced sales distribution to warehouses and third-party sales." He asserts the new approach will help generate cash while still "providing optionality on assets sold to warehouses as TerraForm holds a call right to buy the assets from the warehouse."
  • CFO Brian Wuebbels insisted SunEdison will turn cash flow positive next year, with gross margin rising to $0.35/watt and opex dropping to $0.17/watt. He cautioned the company still has to make nearly $500M in earn-out payments related to the First Wind acquisition between now and the end of 2016.
  • SunEdison's Q3 results, guidance/details

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