This Could Be the Only Hope for SunEdison Stock
Well, another string of bad news has hit SunEdison Inc (NYSE:SUNE)! However, this time, the concerns might be more serious for holders of SUNE stock than they think.
Lawsuits are becoming a tradition for the company. Two new lawsuits have hit SunEdison on Thursday—one from its former acquisition target and the other from some its employees. Topping it off is a price cut by Deutsche Bank. All of these headlines have pushed the stock down to levels not seen in two years.
Buy the dips! That’s the chorus from Wall Street for its darling stock. The question: is now a good time to initiate or increase your stake?
Before I get to the answer, allow me to lay out the biggest problem facing SunEdison.
One word: debt!
The company’s complex financial arrangement with its yieldcos is a major concern. The company has been using these special entities with rosy financials to make unprofitable acquisitions left and right.
These debt-financed acquisitions may have helped the company in becoming one of the biggest solar companies in the world. In the process, however, debt has ballooned to unmanageable levels, and is now raising an alarm in the investor quarters.
At the same time, management has made little restructuring effort. Corporate governance issues now mar its reputation. In fact, we’re now hearing that one word that terrifies stockholders more than anything—bankruptcy!
But hold your horses!
There’s one way the company may still be saved and that is if an activist investor jumps in to save the company. Metaphorically speaking, the company awaits its knight in shining armor.
This “knight” could be Claire Gogel, former partner at Greenlight Capital and a close aide to David Einhorn. The company has recently given a board seat to Gogel and has also agreed to cooperate with the billionaire investor on better governance initiatives.
Einhorn holds a significant six-percent stake in the company. For him to avoid losses for his investors, the billionaire investor must push for reforms at the company.
Rumor has it that he might be working on selling some of the company’s assets to pay off some of its debt load. It is also being said that he might be aiming for an altogether sale of the company. In either case, the stockholders end up being in a safer position.
The Bottom Line on SUNE Stock
SunEdison’s miseries are growing because of the management’s sterile policies. Nonetheless, the company continues to survive since most of its debt is not due anytime soon. But time is running out fast.
In times like these, it’s better to stand on the sidelines and see how everything plays out before jumping in.
The bottom line: all hopes are now riding on Einhorn. Until a solid turnaround is visible, buying the dip may not be a rational move.