Back in early December, I wrote a post for InvestorPlace that asked the following question about SunEdison Inc (SUNE): Is there any hope?
Well, the answer is now fairly clear. Since I wrote my post, the value of SunEdison’s equity has gotten shredded, down about 50% to $1.55. Keep in mind that — back in July — the SUNE stock price was above $30.
What happened? Interestingly enough, SUNE is not necessarily a bad company. In fact, it is one of the world’s top operators of renewable power plants.
However, the strategies have been dubious. If anything, the focus seems to be mostly focused on pumping up SUNE stock with aggressive financial engineering.
This has involved complex financing structures and spin-offs of units like TerraForm Power (TERP) and TerraForm Global (GLBL) to allow for tax-efficient distributions of dividends (the structure is known as a “yieldco”).
But financial engineering cannot do much when the fundamentals of the industry change, which is definitely the case with SUNE. Let’s face it, the plunge in crude oil has been awful for renewable energy operators. Yet, the costs of building power plants remains enormous.
Interestingly enough, the tumult has meant that SUNE will be as much as 15 days late on the filing of its 10-K. The company has also been engaged in an internal inquiry regarding allegations from former executives about inaccurate financials. It’s not clear if this is another reason for the delay of the 10-K.
Regardless, there is little doubt that SunEdison is in disarray. And this is a huge problem since the company’s business model relies on raising substantial amounts of capital so as to build out its platform. But finding investors brave enough to make commitments seems like a Herculean task. For example, if the allegations of the former executives prove true, there could be an adverse impact on liquidity.
And yes, SunEdison’s financials remain bleak. In the latest quarter, revenues increased by 1.5% to $476 million and losses totaled a whopping $328 million.
No doubt, much of the solar industry has been in free fall, as seen with stocks like Suntech Power (STPFQ) and LDK Solar (LDKYQ).
Bottom Line on SUNE Stock
There is definitely lots of buzz regarding a potential buyout of SUNE. Yet, this may not necessarily mean much for investors; just take a look at the analysis from Axiom’s Gordon L. Johnson II: According to his number crunching, SUNE stock is worth about 39 cents per share!
Now, a big issue is that the company may be on the hook for payments for delays on new power plants. What’s more, SUNE needs to manage a massive debt load of $11.67 billion.
So with little visibility on important matters like liquidity, and also the continuing deterioration in the solar industry, investing in SUNE stock is really just a gamble.
Interestingly enough, it’s an investment that has even confounded some of the world’s top hedge funds, such as Omega Advisors, Greenlight Capital and Third Point.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
