SunEdison will Likely Crash Further

SunEdison (SUNE) has taken a hammering in the last few months as the stock has plunged from $30 to under $3 in just over three months. The drop is not surprising given SunEdison’s given the company’s lack of profitability. SunEdison has been reporting losses for many quarters and the latest quarter was no exception to it.

In Q3FY15, SunEdison stated earnings per share of -$0.68, $0.40 less than the consensus estimate of -$0.28. The company reported revenue of $681 million versus the analyst estimate of $624.97 million. Solar project pipeline grew to 4.5 GW and backlog improved to 1.8 GW at end of quarter.

Growing Pile of Debt

Apart for lack of profitability, investors are also worried about SunEdison’s continuous growing pile of debt.

As SunEdison’s business has grown, so have its debts.
At the end of Q3FY15, the debt reached $11.7 billion, which is equal to consolidated total to SunEdison’s DevCo, comprising its retained projects, and both TERP and GLBL debt. TERP and GLBL presently have over $2.5 billion and $1.25 billion in debt respectively. Excluding the TERP and GLBL debt, DevCo accounts for $7.9 billion debt. DevCo $7.9 billion is backed by approximately 1.6GW of creating projects, as well as 2.9 GW presently under construction.

The company carries on using huge amount of cash for current operations as well as on CapEx and acquisitions. Throughout the last nine months, the company used $1.1 billion on operations, and another $4.6 billion on investing.

SunEdison also recently confirmed that it spent $6.5 billion to 8.8 billion for Vivint and Invenergy acquisitions. However, management believes that operating cashflow will be sturdily positive next year thanks to these deals.

To maintain its position in the market, the company needs to pay down its debt at a faster rate. The company’s management should sell even more projects to third parties. SunEdison needs to find out long-term financing for projects and taking the fundamental business to a stable state to recover the market’s assurance.

One reason that is hurting yieldcos as well as the parent company is the management’s concentration on hitting incentive distribution rights hastily. If the company keeps aside that goal, it can be a helpful step for SunEdison’s future growth.

Conclusion

SunEdison debt reducing efforts are unlikely to have a significant positive impact on the company’s future. The company’s debt pile is enormous and so is its interest expense. Hence, it is highly unlikely that SunEdison will turn profitable in the near future. With that in mind, I’d recommend investors to stay away from the company.
Published on Nov 24, 2015
By Akshansh Gandhi

Copyrighted 2016. Content published with author's permission.

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