SunEdison (SUNE) Could Be a Good Long-Term Holding
It might be an ideal time to invest in SunEdison (SUNE) as the stock has lost almost 65% in the past three months. This is in spite of a strong quarterly performance from the company last quarter, wherein its revenue had increased 41% year-over-year and loss had declined to $263 million from $372 million last year. As such, I think that the drop in SunEdison’s stock is a buying opportunity due to reasons discussed below.
Positives to consider
SunEdison had reported healthy top line growth and narrowing of its losses last quarter mainly due to significant customer traction for its advanced silicon wafers, which are increasingly being used in the semiconductor industry.
The solar technology major has strategically delivered 404 megawatts of wind and solar projects much above the upper end of its guidance and a year-on-year increase of 186 MW.
SunEdison is believed to have notable growth opportunity in the yieldco segment as compared to other developed markets. There’s continued expansion in SunEdison’s diversified project pipeline, which is currently at 8.1 gigawatts including, the gross pipeline additions of 1 gigawatt over the previous quarter. This ongoing robust growth performance boosts the company’s confidence to set 2016 production guidance in 4.22 gigawatts to 4.5 gigawatts range, up 50% compared to its earlier production outlook in 2.8 gigawatts to 3 gigawatts range.
TerraForm Power performed brilliantly during the quarter and delivered $65 million in cash available for distribution, CAFD and significant dividends per share of $0.335, allowed by solid execution and impressive fleet performance. The company’s ability to execute consistently on its commitment to deliver improved shareholder returns is somewhat supported by the solid diversity of TerraForm Power's portfolio, considering both technology and geography.
Further, SunEdison is recording continued success through planned underwriting of robust assets as witnessed by solid portfolio performance and availability. The well-diversified project pipeline of SunEdison has actually allowed it to deliver strong top line growth and maintain impressive cash flow levels to offer superior investor returns.
Moreover, SunEdison is expected to have 8.1 GW of project pipeline comprising of 1 GW of gross additions during the second quarter of 2015. The company has 5.6 GW of total backlog including, 0.8 GW of gross additions in the quarter and finally, it has 1.9 GW of production facility under development, an increase of 239% from 774 MW during the first quarter of 2015.
Liquidity and conclusion
SunEdison has a robust liquidity position with a revolving credit facility of $725 million. In addition, warehouse vehicles having sponsor and infrastructure partners allow additional liquidity to deliver superior growth and notable shareholder returns. There are attractive debt funding costs for TerraForm, enabled by improved compliance with financial policy and disciplined leverage.
Thus, SunEdison can continue growing in the long run as the company invests in its business to tap growth in the end market. Hence, I think that it will be a wise idea for investors to consider buying SunEdison on the drop.