Things haven’t exactly been going SunEdison Inc’s (SUNE) way over the last few months. SUNE has been hit by a string of bad news, bad deals and bad events. The trifecta of pain has caused shares of SUNE to implode over the last year. All in all, SunEdison is down about 93% over the last 52 weeks.
As if that wasn’t enough, profits have eroded and SUNE is setting itself up for a big-time loss this quarter when it reports earnings — expected to come sometime before the end of the month.
But will investors really care if earnings are bad? Odds are probably not.
For SunEdison, the dollars earned this quarter are far less important than several other key issues. The question is whether or not these issues get addressed this quarter or not.
For SUNE Stock, It’s All About VSLR
Given its vast suite of problems, earnings at SUNE have been pretty terrible over the last few quarters. And guess what? They’ll be pretty lousy this quarter as well. Analysts estimate that SunEdison will lose 68 cents per share for the quarter and a whopping $3.84 per share for the entire year.
That may seem like a tidy sum to lose, but investors may not even care about the actual dollar amount. It’s already a given that SUNE is going to stink it up.
The real fixation for SUNE will be its forward guidance, and there are a lot of things to “guide” about.
For starters, is its huge deal with Vivint Solar Inc (VSLR).
The solar stocks deal was supposed to be transformative for SUNE, but as it turns out, it could actually be its demise. After moving into the more lucrative utility-sized/grid-scaled solar building businesses like rival First Solar, Inc. (FSLR), SUNE made the jump into the residential market. By buying VSLR and its plethora of leased roof-top solar arrays, SunEdison had a perfect selection of assets to place into yieldco TerraForm Power Inc (TERP) and siphon the cash flows from.
The unfortunate part of the deal was that the “perfect” assets aren’t necessarily that perfect. With various tax credits ending, the roof-top/residential sector isn’t exactly as lucrative as first thought, which is why billionaire David Tepper — one of TERP’s largest shareholders — is suing to block the yieldco from buying VSLR’s assets.
That’s a big problem for SUNE.
TERP is supposed to buy around 470 MW worth of VSLR assets from SunEdison for nearly $800 million. Yieldcos work in much the same way as master limited partnerships (MLPs). Assets are “dropped down” from a parent firm.
That $800 million is needed to help pay for almost the entire purchase of Vivint in the first place.
Where it gets sticky is that private equity player Blackstone Group LP (BX) owns about 73% of Vivint. It created/acquired the firm via a buyout back in 2012. BX isn’t going to let SunEdison get out of the deal. It’s too lucrative, and there are some questions about VSLR’s ability to remain a standalone firm.
With the deal pretty much happening, SunEdison is going to have to figure out a way to pay the $800 million or so. It can’t tap the debt markets — it has nearly $11.7 billion in total debt.
As for issuing more shares of stock, that’s a no-go as well. Activist investor David Einhorn owns about 6.8% of SUNE, and in bowing to pressure from him, SunEdison agreed not to sell any new shares until two years after the VSLR deal closes.
Need to Hear Something From SUNE
All of the hangups related to VSLR are the elephant in the room for SUNE. It almost doesn’t matter what SunEdison reports on the EPS front. Management needs to provide some sort of guidance, or at least progress on, the deal and lawsuits, or how it’ll come up with the cash to pay for the purchase.
Without it, unless SUNE beats handily, shares of the firm are going to fall pretty badly in after-hours trading and the into the next day’s session. Moreover, without significant progress on the Vivint front, SUNE could be a dead solar stock walking.
Or perhaps, just a dead stock.
Back in November of last year, analysts at J.P. Morgan postulated that SunEdison could be heading for bankruptcy due to various margin calls and issues related to declining share prices. That was before all of these issues really took hold. The situation has only gotten worse since JPM made their call. Unless, we get something from management this quarter about the fate of the deal, SUNE could be in for a world of hurt going forward.
The bottom line for SUNE is to forget the firm’s bottom line. It’s going to be a loss. The real key is to focus on whatever management says about the VSLR deal.
That will be the driving factor in SunEdison stock in the reported quarter and going forward.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned stocks.
EDITOR’S NOTE: SunEdison has not announced a date for its fourth-quarter earnings report, but it is expected to report this month. We apologize for the error.