Can This Save SUNE Stock?
SunEdison Inc (NYSE:SUNE) stock is a trade akin to a roller coaster ride; it is up one day and down the other. Dizzied investors of SunEdison stock want to know if their investment will ever find support.
Before I get to the answer, take note that SunEdison might now be facing some serious survival threats. An internal probe is underway to assess the company’s liquidity. The investigation has forced the company to delay its quarterly filings. In the same week, the company has also suspended dividends for its preferred stock.
All of these hint at liquidity troubles at the company. In other words, the company may not have enough money to service some of its short-term liabilities. The company could go bankrupt should an unexpected expense suddenly come up.
The severity of the matter becomes obvious when you look at the company’s last income statement. Year-over-year revenue has remained relatively flat while interest expense more than doubled in 2015. This indicates only one thing: SunEdison’s debt-backed acquisitions have largely turned out to be duds.
In the last two years, SunEdison’s management went on an acquisition binge to buy many unprofitable companies. These debt-backed acquisitions have brought the company under serious liquidity constraints. In fact, in order to add some liquidity to its balance sheet, the company issued some more debt in January. (Source: “SunEdison Plunges on `Expensive’ Plan to Boost Balance Sheet,” Bloomberg, last accessed March 7, 2016.)
Management’s complacency with debt is mind-boggling!
The sad part for SUNE stockholders is that the management has still not learned their lesson. The company has decided to go ahead with the Vivint Solar Inc (NYSE:VSLR) acquisition, despite facing David Tepper’s jeopardizing lawsuit. (Source: “Here’s how David Tepper’s lawsuit could really screw up Wall Street’s nightmare stock,” Business Insider, last accessed March 7, 2016.)
At first glance, it seems like nothing can save SunEdison now. But think again! There’s one thing that can still take the company out of this whirlpool of troubles: asset sales.
Remember that SunEdison is one of the biggest solar companies in the world. It holds a huge portfolio of assets not just in the U.S., but globally, in over 35 countries. SunEdison has a good chance to save itself if it sells some of its unprofitable assets to pay off a portion of its debt. That way, not only does it improve its liquidity position on its balance sheet, but it also cuts down on losses on its income statement. The company will be able to take some of the interest expense load off of its shoulders and be able to focus on streamlined operations.
The Bottom Line on SUNE Stock
SunEdison is a front-runner in the green revolution that has recently taken the world by storm; that reason alone has kept the company afloat. However, management’s miscalculated investments are pushing the company to the brink of insolvency.
However, the fact that insiders have been buying SUNE stock makes me optimistic that they will be more than willing to work on a serious turnaround. I’m still counting on activist hedgie David Einhorn, who recently got a seat on SunEdison’s board and holds a significant stake in the company.
If Einhorn is able to push the company towards some meaningful asset sales, SunEdison might be able to tackle its debt problem in time.
Had I held the stock for this long, I’d rather wait a little longer and see. Long story short, I’m not writing off a rebound in SUNE stock just yet.