Solar power company SunEdison (SUNE) saw shares crater in trading on Thursday, as the stock lost 25% of its value over six-and-a-half hour trading session.
SUNE stock remains in the dregs today; around lunchtime Friday, shares were off another 7%, even as a chorus of analysts remarked on the unfairly steep selloff.
Now down nearly 20% year to date, let’s take a look at the curious division on SUNE stock between Wall Street analysts and traders.
Earnings Miss, Liquidity Concerns
SUNE stock would’ve been just fine if it only had to report revenue, which came in at $455 million, 12.6% above the $403.8 million consensus estimate.
But, we live in the real world, not a dream land in which companies can just selectively pluck numbers out of thin air. Well, kind of.
SunEdison posted a net loss of 67 cents per share in the second quarter, far worse than the 45-cent loss analysts forecast. Yet, the driving force behind Thursday’s after-market SUNE stock plunge was actually something else: The cash generation abilities of SunEdison’s yieldco, TerraForm (TERP).
SunEdison hinted in the earnings call that it could continue dropping down super-high-yielding assets to TerraForm, taking margins off the top of other SUNE segments to do so. This, combined with the fact that TerraForm did not raise 2016 guidance, got Wall Street frazzled. It was in the wake of this news that SUNE stock made its precipitous dive on Thursday.
Then, the analysts came to the rescue. Or, they tried, at least.
“Nothing I’ve heard on today’s call, though, would make me believe they’re in some sort of liquidity crisis, so I do think the selloff is overdone,” said Ben Kallo, a Robert W. Baird analyst. However, Kallo also noted that he’d want to see SUNE settle down before stepping in.
Credit Suisse (CS) was even more bold, with analysts Patrick Jobin, Maheep Mandloi and Jennifer Ky maintaining an “outperform” rating and $45 price target on SUNE stock. That’s about three times SunEdison’s current price.
Investors aren’t buying the bullishness, and I don’t blame them. I remain firmly convinced that individuals should do their own homework when hunting for stocks to buy, taking the opinion of both bulls and bears into account when forming opinions.
After all, a disturbing 2013 survey of 365 sell-side analysts revealed that, of nine factors that were most important to their compensation, the two least important were ones you might rationally expect to be most important. They were:
“8) The profitability of your stock recommendations
9) The accuracy and timeliness of your earnings forecasts”
The most important factor to analyst compensation was industry knowledge.
In any case, it’s important to remember that not only do analysts not have access to a crystal ball, but they often don’t even have the best interests of investors in mind.
As for SUNE stock, we may have to wait another quarter or two to see if the liquidity concerns were justified. In the meantime, I’d stay away from this one and avoid trying to catch a falling knife.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
