SunEdison Inc. SUNE, a solar company, is facing criticism of late. Things worsened following reports that hedge fund manager Daniel Loeb's Third Point LLC has exited its position in the company.
According to a regulatory filing on Friday, Third Point sold 12.4 million shares in SunEdison at the end of the second quarter valued at $370.9 million.
Making matters worse for the renewable energy producer, a Bloomberg report quoted negative comments by hedge fund manager David Einhorn who is also the Chairman of Greenlight Capital, SunEdison’s biggest investor.
According to Bloomberg, Einhorn is slashing his stake in SunEdison. The move comes as Greenlight’s main hedge fund faced huge losses this year through October. According to a filing with the SEC, subject to market conditions and approvals, the company intended to cut its stake by 6.2 million shares in the third quarter. Einhorn now holds approximately 18.2 million shares in SunEdison.
We would like to remind investors that this Zacks Rank #3 (Hold) company has been struggling with soft revenues and weak bottom lines over the past couple of quarters, primarily due to a significant increase in general and administration (G&A) as well as interest expenses resulting from a higher debt burden.
SunEdison’s Recently Reported Q3 Earnings
SunEdison recently posted adjusted loss (including stock-based compensation but excluding all one-time items) of 78 cents per share in third quarter 2015, much more than the Zacks Consensus Estimate of a loss of 62 cents as well as the year-ago quarter loss of 68 cents.
The company’s revenues of $476 million were also soft, increasing just 1.5% year over year, but topping the Zacks Consensus Estimate of $430 million.
Further, the disappointing quarterly results from SunEdison’s yieldcos – TerraForm Power Inc. TERP and TerraForm Global Inc. GLBL – also contributed to the decline. A yieldco is a publicly-traded company formed to own operating assets that produce cash flow, which is then distributed among investors through dividends.
In other words, yieldcos buy finished projects developed by the parent company, thereby freeing up capital for the parent company to spend on more projects. A cash-strapped parent has difficulty completing projects while a cash-strapped yieldco has difficulty paying off its financers. SunEdison has problems on both counts.
TerraForm Power reported a loss of 3 cents per share for the third quarter of 2015, comparing unfavorably with the Zacks Consensus Estimate of earnings of 28 cents. On the other hand, despite incurring narrower-than-expected loss, TerraForm Global’s revenues of $29 million missed the Zacks Consensus Estimate of $34 million.
The Broader Picture
In fact, the troubled company’s share price has plunged more than 85% since Jul 20 when it announced the acquisition of Vivint Solar Inc. The decline reflects investors’ concerns about the huge debt it is incurring for the purpose and the prospects of the takeover.
SunEdison has been on an acquisition spree over the past year in order to strengthen its position as a renewable energy developer. However, these initiatives are now being considered ineffective as SunEdison does not have the financial strength to fund the projects.
The acquisitions have taken a toll on the company’s balance sheet with total outstanding debt of nearly $9.77 billion at the end of third-quarter 2015, up from $9.17 billion at the end of second-quarter 2015. The company exited the quarter with cash and cash equivalents of only $2.39 billion as against $1.29 billion in the previous quarter. During the first three quarters of 2015, the company used $1.14 billion of cash for operational activities.
The dismal results and selling of stakes in the company resulted in a nearly 33.8% plunge in its share price in yesterday’s trade. The company’s shares have dropped about 84.5% year-to-date and 85.9% over the past one year.
Given the scenario, we have instead picked three top-ranked stocks below, which may likely serve as better alternatives in the short term because on the back of growth, valuation, and earnings statistics, thus making them potential replacements for SunEdison:
3 Prominent Picks
Silicon Motion Technology Corp. SIMO
Silicon Motion Technology Corporation designs, develops and markets universally compatible and low-power semiconductor solutions for the multimedia consumer electronics market. This Zacks Rank #1 (Strong Buy) company has a long-term estimated earnings per share (EPS) growth rate of 21%, much higher than the industry average of 12.3%. Moreover, it has a higher ROA and ROC than the respective industry averages.
The stock has witnessed two positive estimate revisions over the last 60 days for fiscal year 2015. Our EPS consensus estimate has gone up from $1.72 per share to $1.80 per share over the same time frame. The company surpassed our earnings estimates in the last four quarters with an average positive surprise of 18.3%.
Integrated Device Technology, Inc. IDTI
Integrated Device Technology designs, develops, manufactures and markets a broad range of high-performance semiconductor products and modules. This Zacks Rank #1 company has a long-term estimated EPS growth rate of 19.1%, much higher than the industry average of 12.3%. Moreover, it has a higher ROA and ROC than the respective industry averages.
The stock has witnessed two positive estimate revisions over the last 60 days for fiscal year 2016. Our EPS consensus estimate has gone up from $1.06 per share to $1.11 per share over the same time frame. The company outpaced our earnings estimate in three out of the past four quarters with a positive average earnings surprise of 10%.
NVE Corp. NVEC
NVE Corp. is a recognized leader in the practical commercialization of spintronics, which many experts believe represents the next generation of microelectronics. NVE's products include magnetic sensors and couplers, which revolutionize data acquisition and transfer. This Zacks Rank #2 (Buy) company has a long-term estimated EPS growth rate of 25%, much higher than the industry average of 12.3%. Moreover, it has a higher ROA than the respective industry averages.
The stock has witnessed one positive estimate revision over the last 60 days for fiscal year 2016. Our EPS consensus estimate has gone up from $2.50 per share to $2.68 per share over the last 60 days.
Given their growth potential, these stocks could be solid investments in the near term. These stocks with rising estimates and high growth projections are strong bets. We believe that investing in these companies, which have earnings beat potential on strong fundamentals, would yield strong returns.
So what are you waiting for? This is the right time to grab these potential market movers.
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SUNEDISON INC (SUNE): Free Stock Analysis Report
INTEGR DEVICE (IDTI): Free Stock Analysis Report
SILICON MOTION (SIMO): Free Stock Analysis Report
NVE CORP (NVEC): Free Stock Analysis Report
TERRAFORM POWER (TERP): Free Stock Analysis Report
TERRAFORM GLBL (GLBL): Free Stock Analysis Report
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