Things have officially gone from worse to disastrous at SunEdison Inc (SUNE) now that the company has a clear-cut accounting nightmare on its hands, and SUNE stock has a chance of hitting penny status soon.
SUNE, of course, has been reeling for months, but worries really accelerated a few weeks ago when the company said it had to delay filing its annual report so it could investigate claims of inaccurate financial disclosures.
That should have been bad enough, but then on Wednesday SUNE said it was delaying the filing yet again because it discovered “material weaknesses in its internal controls over financial reporting.”
However this thing plays out, investors are looking at anywhere from reams of serious accounting restatements to outright fraud.
Not to put too fine a point on it, but these types of developments are typically deleterious to a company’s share price.
In other words, SUNE stock is a goner.
The sad thing is, the writing has been on the wall since last summer, when it became clear that SunEdison’s unconventional corporate structure — aka the “yieldco model” — was crap.
Time was, the yieldco model was hailed as a breakthrough in the financing of energy projects. The idea is that the yieldco raises money from public investors to buy power projects from developers, which it then sells to utilities.
When a company like SUNE sponsors a yieldco (it actually has two), it gets a captive buyer for its finished projects. Sounds great, except that when energy prices cratered, they took shares of yieldcos with them.
SUNE Stock Goes Up in Flames
This circuitous form of financing never did smell quite right, and now SUNE shareholders are paying the price.
SUNE stock has lost about 95% of its value since July, and it’s down 62% year-to-date as of Wednesday’s open. A stock that eight months ago went for more than $30 a pop is now wallowing below $2.
The business crunch from the collapse of the yieldco model forced SunEdison to slash payrolls, cancel or renegotiate contracts and even stop paying some of its bills.
But accounting shenanigans are a different order of crisis. Those have the potential to drag on and on. They result in companies having to restate financials, sometimes for years, which means all the data the market was using to evaluate the company was wrong.
And, of course, there’s always the specter of fraud behind the whole mess.
SUNE stock is so mortally beaten down that it could be a good rebound trade for fast money. It’s liquid, it’s volatile and the company isn’t going belly up tomorrow, near as anyone can tell.
But the long-term prospects for this name are so poor that it’s really not worth the trouble. SUNE is a trailer park fire. There’s no reason to stick around and watch it burn.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
