Don't Turn Off The Lights On SunEdison Stock Yet

  • SunEdison stock has crashed heavily on speculative fears.
  • Although laden with debt, the company still has a book value nearing 2 times the company's market cap.
  • As long as SunEdison continues to sell off assets and repair some of the damage to their balance sheet there will be much sunnier days ahead.

SunEdison (NYSE:SUNE) stock is trading far below its book value. With assets of $20.7 billion, liabilities of $19.2 billion, and a market capitalization of only $853  million, SunEdison stock is trading at a mere 57% of book value. This presents a huge opportunity for investors because SunEdison stock is being dragged down below its intrinsic value due to macroeconomic fears in energy and the company’s debt laden balance sheet.

SunEdison, like many solar companies, went down with the sinking energy ship caused by falling oil prices. Since July 2015, SunEdison stock has tumbled over 90%.
SUNE stock chart

Source: SunEdison Stock Price Data by amigobulls.com

Falling oil prices should not have had this kind of significant impact on solar, however, it did play a role. But it wasn’t just falling energy prices that affected SunEdison, it was also investor fear of their growing debt. Now although SunEdison has a staggering $9.8 billion in long-term debt, they are not upside down. The company has the assets to cover their liabilities.

But what is important is understanding that the current debt levels and current negative bottom-line figures are investments for stronger long-term cash flows. As the company began a shift in its business model from building and then selling their projects, to building and holding their projects, long-term debt grew significantly to support long-term investments. While the total debt amounted has begun to frighten investors, it was a necessity in the businesses transition model.

The Vivint Solar acquisition has also become a hot topic of controversy among SunEdison and TerraForm Power (SunEdison’s yieldco) shareholders. Hedge fund manager David Tepper, a large shareholder of TerraForm Power, is suing SunEdison to block their acquisition of Vivint Solar claiming it is not in the interests of the TerraForm shareholders. The lawsuit was yet another factor which brought the already discounted SunEdison stock even lower.

What SunEdison has started to do, and will continue to do, is to sell off some of its assets in order to relieve itself of some debt and strengthen its balance sheet. SunEdison's last sale was to Bangchak for $82 million in which they sold them their Japanese solar division. The sale of SunEdison’s assets should help restore some confidence in the company’s ability to meet their short-term debt obligations. As SunEdison recently gave hedge fund manager David Einhorn a seat on its board, hopefully, he can help improve their sales strategy to maximize the company’s ability to deleverage their balance sheet.

With a market cap of $853 million, SunEdison stock is just too good to pass up. If they can continue to sell assets to improve their liquidity and meet their short-term obligations, then the SunEdison stock is poised to take off over the long-term. Many of their liquidity, acquisitions, and debt are causing short-term headwinds, but that will be put to rest in due time. For a company that is trading at a fraction of their sales and book value, I think SunEdison offers big upside.

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  • I do not have any business relationship with the companies mentioned in this post.
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