SunEdison: Looking Past the Drop

Semiconductor manufacturer SunEdison (SUNE) shares have dropped close to 52-week lows in 2015, having lost 36% of their market capitalization so far. Considering the weakness in SunEdison's performance over the last four quarters, the stock's drop so far this year looks justified. In fact, SunEdison has missed earnings estimates by huge margins in three of the last four quarters. But, is there any hope for the company going forward? Let's find out.

The way ahead

The reason behind SunEdison's weakness can be attributed to weak energy pricing, as despite witnessing strong growth in its shipments, SunEdison's top line performance has not been consistent.

Additionally, SunEdison is increasingly focusing on project retention as compared to third party sales, which is another reason why the company is seeing slow revenue growth.

Crucially, SunEdison has a strong backlog of 2.9 GW, along with 2.7 GW of gross pipeline additions and 774 MW under development. Relying on the successful earlier conversions of SunEdison, the consolidated backlog, project pipeline, and leads and qualified leads are estimated to help it generate $2.2 billion of cash available for distribution from already completed projects.

SunEdison's solid production last quarter exceeded the company's guidance, and this signifies the well-established operational strategy of SunEdison that is focused on improving production and delivering outstanding top line growth. Moreover, to optimize its portfolio, SunEdison has strategically disposed off its interest in SunEdison Semiconductor.

Positive moves

SunEdison acquired First Wind in January and announced the acquisition of the Atlantic Power on April 1 with several related announcements linked to its emerging markets expansion strategy. SunEdison's continued efforts to grow its cumulative installed CAFD, coupled with its market share expansion strategy through well-timed acquisitions, is forecasted to significantly expand its market share and lead to a better revenue and earnings performance.

Recently, SunEdison also signed a Memorandum of Understanding to create a joint venture to develop approximately 1 gigawatt (GW) of wind energy power plants internationally by 2018. SunEdison has also signed a deal with the County of Almeda, California, to install 3 megawatts (MW) DC of solar systems as a part of the second phase of the Regional Renewable Energy Procurement Program (R-REP).

In addition, SunEdison has been awarded a key contract to develop 33 megawatts (MW) DC of rooftop solar with Southern California Edison (SCE) to modernize Southern California. Meanwhile, SunEdison has successfully concluded the interconnection of the South Milford solar facility in Milford, Utah. The 3.8 megawatt DC facility is now said to be the biggest operating solar power plant in Utah.

Looking ahead, SunEdison is expected to continue improving its portfolio as it has raised money from the market to fund its expansion moves. For instance, earlier this year, SunEdison offered $375 million worth of total principal amount of convertible senior notes due 2023 and $375 million total principal amount of convertible senior notes due 2025 in a private placement.

The net proceeds from this offering will be utilized to fund M&A activities to grow the size and value of its prospective developing markets vehicle, apart from building a warehouse facility to capture and hold operating assets for estimated dropdowns. Hence, SunEdison seems to be making the right moves to get better in the long run.

Conclusion

Despite crashing on the stock market in 2015, SunEdison is capable of getting better in the future. Driven by the increasing adoption of solar energy across the globe and the company's growing traction in the end market, SunEdison can perform well going forward. Thus, the stock's drop so far this year could be an opportunity for investors to improve its performance in the long run.

Published on Sep 7, 2015
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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