When it rains, it pours: That is certainly the case for SunEdison (SUNE) Tuesday, as the company unveiled not one … not two … but three different news updates for owners of SunEdison stock to sift through on the first day back from a long weekend. And with SunEdison stock up more than 6% on the news, SUNE owners are not complaining.
The move in SUNE pulls it 55% above the low SunEdison stock hit back on Aug. 26th, and up more than 9% since yours truly here suggested SunEdison stock was a buy two days too early.
But whether you bought into SunEdison stock when I suggested or when it hit its bottom, this news is poised to sustain the bullish tailwind SUNE has already seen of late.
SunEdison Partners With Dominion Resources
Tuesday’s headline regarding SunEdison was the announcement that it would be buying a 33% stake in a contracted solar portfolio project currently managed and owned by Dominion (D).
Fifteen of the 24 facilities are already in operation, and the remainder should become operational before the end of the year. All told, the project will have a combined power-production capacity of 425 megawatts, enough to power approximately 75,000 homes. SUNE is spending $300 million, give or take, for its one-third stake in the venture.
It’s not the first time Dominion and SunEdison have teamed up. In fact, it’s not even the only venture Dominion Resources and SUNE entered into today.
Separately, SunEdison and Dominion announced on Tuesday they’d be 50-50 partners on the development of a 265-megawatt facility to be established in Utah.
Dubbed the Three Cedars project, SUNE will oversee the construction of the facility, which is expected to begin operating next year. The project is tasked with facilitating the supply of power called for within the terms of a 20-year power-purchase agreement with PacifiCorp.
While the two deals with Dominion pairs up two similar companies, SunEdison hasn’t been aiming to diversify in a purely lateral sense — It’s also been aiming to diversify via different business models.
Case in point: In July, SunEdison announced its intent to acquire Vivint Solar (VSLR).
The pairing was a bit unusual in the sense that Vivint Solar offers solutions to retail users of solar power by essentially using their savings on utility bills to finance the purchase of solar panel equipment. SUNE, conversely, had been focused on the establishment of utility-level projects like the aforementioned Three Cedars project.
But as the solar industry matures and it becomes increasingly commoditized, such vertical, lateral and horizontal diversification is apt to become the norm.
More of the Same Is on the Way
Although the Vivint Solar deal was ultimately facilitated by a combination of SunEdison stock and cash, the backing for the deals with Dominion may be the shape of things to come for the foreseeable future.
Per yet another press release posted Tuesday morning, the asset management arm of JPMorgan Chase (JPM) has effectively setup revolving equity-based financing for future partnership deals of the Dominion Resources ilk.
The arrangement doesn’t call for the issuance of more shares of SUNE in the vein of the Vivint deal. Rather, the agreement with J.P. Morgan’s Global Real Assets effectively serves as a line of credit that makes clients of J.P. Morgan into owners, as opposed to lenders.
This agreement is being taped to back the 33% purchase of the aforementioned 425-megawatt facility, though more deals are anticipated through the middle of the coming year.
Bottom Line for SunEdison Stock
If the timing of Tuesday’s bevy of press releases wasn’t optional, they were poorly planned on behalf of SunEdison.
How so? They largely obscured the fact that SUNE CEO Ahmad Chatila suggested last week that the company could turn cash-flow positive as early as the end of this year.
All the same, the timing and the nature of Tuesday’s news and Chatila’s comments last week aren’t likely a coincidence.
The persistent bleeding of cash from SUNE owners for nearly three years has forced investors to question whether SunEdison would be able to secure the financing it needed to fund future projects. The nosedive SunEdison stock took following the announcement of the Vivint Solar deal only exacerbated that concern.
Chatila largely quelled both concerns in one fell swoop over the past few days. The accumulation and establishment of several cash-driving projects over the past few quarters will start to bear fruit (positive cash flow) soon, and clearly SUNE can get funding when it needs it.
But it’s still got a mountain to move. Specifically, SunEdison needs more scale, and a seamless integration of Vivint would help. But, at least there’s a light at the end of the tunnel, and a means of reaching that light has just materialized.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
