SUNE Stock Could Soar If This Happens
Wall Street darling, SunEdison Inc (NYSE:SUNE), has had a rocky market ride all through the last half of 2015 and sadly, for the company’s stockholders, the rout is continuing this year. The question: will SUNE stock ever rebound to last summer’s highs?
While 2015 was particularly tough on almost all major solar stocks, SUNE stock’s demise had more to do with its own troubles than that of the industry. It was expected that 2015 would mark the beginning of a solar revolution, but as soon as the oil and natural gas rout began, sentiments for this alternate source of energy started shifting.
It is still fairly certain that the solar industry will take off sooner or later, but the timing seems less predictable now. Nonetheless, SunEdison has a good chance to keep growing, if only it can salvage its business from the mess it has gotten itself into.
SunEdison Stock Facing Serious Threats
The bane of SunEdison’s success is its heavy debt load. Worse yet, management’s recent restructuring move completely backfired as the stock took a massive plunge following the news. To put it simply, in order to manage some of its debt, SunEdison has issued some more debt. This debt will eventually be convertible to equity and will end up diluting current stockholders’ stakes.
Further making matters worse for the company is the complicated inter-company transactions with its two yieldcos—TerraForm Power and TerraForm Global—both of which are publicly traded, separate entities. SunEdison has essentially been using these yieldcos for financing projects and making acquisitions, which have all largely been debt-backed. The debt was then dumped on SunEdison’s balance sheet.
In fact, the complex relationship between the parent and its yieldco is now starting to create serious troubles, the latest of which is David Tepper’s lawsuit against SunEdison. Tepper happens to be a major stockholder in TerraForm Power and is lobbying against SunEdison’s use of TerraForm Power to close SunEdison’s Vivint Solar acquisition. (Source: “David Tepper is suing Wall Street’s nightmare stock,” Business Insider, January 13, 2016.)
Last Rays of Hope for SUNE Stock
In the midst of all these threats, I still see light at the end of the tunnel. Let’s not forget that what’s in question here is one of the biggest solar companies in the world, which is undergoing substantial domestic and international expansions.
Some of its recent acquisition deals have either recently been closed or are about to close this year, including that of Dominion Resources and Vivint Solar, which will extend its solar capacity and expand its footprint on rooftops across the country.
If we take its debt and its complex arrangement with its yieldcos out of the equation, SunEdison has a great business model that has managed to thrive even with little to no profitability. The company has received a further boost from Congress’ recent decision to extend investment tax credits (ITC) for the solar industry.
All that’s needed now is a serious effort by management to restructure the company and rebuild its repute.
The bottom line: I’m waiting on the sidelines in hopes of a turnaround. Until then, I’m not writing off a rebound in SUNE stock.