This Could Be Huge for SUNE Stock
SunEdison Inc (NASDAQ:SUNE) has been on a rollercoaster ride for much of its existence. SUNE stock has climbed and crashed more times than I care to remember, yet the firm still has a ton of value. You just have dig through all the pessimism.
The ride began with the planned acquisition of a rooftop solar company named Vivint Solar Inc (NYSE:VSLR). There was no concern over SunEdison until the company announced its plan to buy Vivint. Shareholders were not happy.
In fact, the market couldn’t get enough of SUNE stock until that point. They thought the company’s yieldco strategy was brilliant. Build a renewable energy plant, then get a subsidiary to buy it, run it, and pass through its profits—genius.
Unfortunately, the Vivint deal shattered those rose-colored glasses. The market was vulnerable after China’s manufacturing binge created an oversupply of solar panels. Investors were also wary of a sudden fall in oil and natural gas prices.
It didn’t matter that oil is used in transportation, while solar power is used for electricity. The sheer idea that traditional fuels were growing cheaper scared the hell out of most investors. They didn’t think this was the time for a multibillion-dollar acquisition.
And maybe that was a valid concern because SunEdison’s stock crashed hard and fast in the following months. The descent was steep, from a high of $32.13 to a low of $1.26.
Major investors in a SunEdison yieldco took the firm to court to block the acquisition. The investors lost the case, but it seems SunEdison wasn’t too eager to keep fighting its shareholders. After months and months of slogging it out, the Vivint deal fell through. (Source: “Vivint Scraps SunEdison Deal That Burst the Yieldco Market,” Bloomberg, March 8, 2016.)
Should we be happy about that? I think we should. The buyout was costing $1.9 billion—a pretty hefty sum for a company currently worth $659.2 million. Now that the “deal from hell” is over, maybe it’s possible that SUNE stock could return to a decent level.
Let’s assume that part of the damage to SunEdison stock is real. The company had to take on some very expensive financing during the last few months. It should surprise no one that the added interest expense would burden the firm’s cost base.
But that doesn’t mean SUNE should stay a $2.00 stock either. We can say that with a reasonable degree of confidence because it’s currently trading 14.6% of its book value. That means that if you liquidated all of SunEdison’s assets and paid off all its debts, shareholders would still have a claim on $4.5 billion. (Source: “SunEdison Reports Third Quarter Earnings,” Securities and Exchange Commission, September 30, 2015.)
And yet the firm’s market capitalization is only $659.23 million. Investors were probably applying a discount because of SunEdison’s legal troubles and the hundreds of millions that would be spent on the Vivint deal.
Well, the Vivint deal is dead and SunEdison scored a major win in court. Once the market digests this news, it seems inevitable that SUNE stock will skyrocket.