SunEdison's Turnaround Is Way off Track

2015 was a terrible year for SunEdison (SUNE), as the company dropped a considerable portion of its market cap in the last two quarters. In addition to being in red previous year, the company is off to a dreadful start this year as well. SunEdison still has not shared its previous year yearly report postponing again due to what it designated as material weakness in its internal financial reporting controls.

Due to this reason, it is very difficult to say precisely where the company stands or how the company is executing its own recently created strategic plans.

When SunEdison shared its financial plans regarding 2016, it was presumed that it would be able to sell the renewable energy projects it creates for third parties at a 17 percent gross margin.
SunEdison also projects operating expenses to drop to $600 million a year. If both the expectations are met, SunEdison could create 3.5 GW of projects per year, sell them, and recover expense on operations, excluding the financing costs.

However, the problem regarding this is that TerraForm Power and TerraForm Global have tumbled hugely and it is highly likely that they will not buy projects from SunEdison in the near future. The company says it can use warehouse vehicles to house projects, but it is not clear for what they will be alacritous to pay for projects.

On the other hand, SunEdison requires to show that it can create and sell its projects for a gross margin of 17 percent or more. If the company fail to do so, it would be face more problems regarding debt payments.

Apart from this, in 2015, SunEdison made a shocking move by exchanging convertible debt for new debt with an adjustable interest rate and 11 percent floor. This interest rate is extremely high given the low rate environment. SunEdison still has a lot of debt load on it, and needs to take several steps to reduce it, otherwise it will be very near to bankruptcy.

As of now, SunEdison is still closer to bankruptcy than it is to a turnaround. The company is unlikely to meet its gross margin targets and with debt increasing, betting on SunEdison's recovery now does not make sense. Delayed financial report further adds to the doubts surrounding SunEdison and it would be wise for investors to stay away from the stock for the time being.

Disclosure: No position in any of the stocks.
Published on Mar 22, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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