The shares of Sunedison are suffering another significant decline today due investor concern over problems related to its yieldcos, TerraForm Power and TerraForm Global. The pain continues from one of the hottest stocks among hedge funds.
The stock price of Sunedison was down 14% to $4.97 per share at the time of this writing around 2:00 in the afternoon in New York. Yesterday, the company’s stock plummeted as much as 22%. The stock value of TerraForm Power declined more than 4% to $13.81 while TerraFork Global dropped over 3% to $6.94 per share.
Investors are concern Sunedison will not become profitable
Investors are concerned that Sunedison is highly dependent on TerraForm Power and TerraForm Global, which lost more than 55% and 50% of stock value year-to-date. Both yieldcos stand at the core of the operating strategy of Sunedison.
Chilton Capital's REIT Composite was up 6.1% last month, compared to the MSCI U.S. REIT Index, which gained 4.4%. Year to date, Chilton is up 6.3% net and 6.5% gross, compared to the index's 8.8% return. The firm met virtually with almost 40 real estate investment trusts last month and released the highlights of those Read More
Many are worried that it would be impossible for Sunedison to become profitable given its huge debt and collapsing stock price (including its yieldcos).
Investors were disappointed with the company’s third quarter financial results. Sunedison posted a loss of $0.91 per share compared with the $0.70 loss per share expected by Wall Street analysts.
The management of Sunedison expected to deliver a positive cash flow in the middle of 2016. CEO Ahmad Chatil stated that they implemented difficult but necessary decisions such as streamlining its organization and global footprint and improving opex to achieve long-term success.
TerraForm Global under investigation
Lundin Law PC is investigating TerraForm Global based on claims that the company committed possible violations of federal securities laws.
There were allegations that TerraForm Global issued false and misleading statements related to its financial performance. The law firm’s investigation is focused in whether the company failed to disclose that Sunedison, its IPO sponsor was experiencing unprecedented losses, which was revealed after the completion of the public offering.
The law firm also wants to find out whether TerraForm Global failed to disclose that Sunedison was experiencing liquidity and debt issues that ended its ability to develop projects, and the aggressive growth plans for Sunedision and TerraForm were unachievable.
UBS analysts opine:
While forward development guidance was maintained, we attribute weakness to five key factors including: 1) lower margins on retained projects than expected ($0.26/W) vs. overall 2016 margin expectations of $0.36/W; 2) Mgmt confidence on the pending VSLR deal, emphasizing it simply had not had time to close the deal; recall a potential renegotiation of the deal would be perceived quite positively, however, mgmt was adamant in asserting there was no walking. Other cautious angles incl: 3) LAP arbitration risk, with the counterparty seeking $150 Mn in damages, 4) O&M refunds to TERP on higher than budgeted costs on FirstWind portfolio, and 5) higher 3Q Opex cost trends, albeit with some adjustments ($361 Mn in total 3Q15 opex includes $66M of ‘1x and other’ incl stock comp and UK wind-down, $54 Mn from the IPO, and $65 Mn in restructuring/impairments). This higher opex compares vs. original FY15 guidance of $590Mn and vs. 2Q16 run-rate target of $150 Mn).
In 3Q, SunEdison showed initial progress following its 10/7 update call in which it reset growth expectations given the financing environment and YieldCo market volatility. Volume of 640MW exceeded guidance of 540-600MW, with activity levels continuing to show strength across the board: projects under construction (+1GW qoq), pipeline (+0.4GW) and backlog (+0.5GW qoq). On profitability, SunEdison cited a 15% gross margin on third-party system sales with a $0.36-$0.37/W margin that compared to $0.26/W for retained systems. Investor feedback suggests lack of disclosure on the 15MW/26MW split between systems volumes and equipment sales caused initial confusion around the metric. On guidance, SunEdison narrowed its 2015 MW range with the biggest change being a higher mix of third-party sales (roughly 2X vs. prior) and noted its pending acquisition of Vivint Solar is expected to close in 4Q15 or 1Q16. Going forward we adjust our estimates to reflect consolidation of TerraForm Global. We remain Not Rated; our estimates do not reflect any pending transactions.