SunEdison (SUNE, Financial) is an important position for David Einhorn (Trades, Portfolio) with a 6.8% stake (4% through Greenlight Capital). SunEdison does everything from development and finances, up to installment and operation of solar power plants. It is one of the largest renewable energy companies in the world (market cap of nearly $1 billion) and is headquartered in the U.S.
Last year, it was one of Einhorn's biggest losers as the firm declined over 90% after announcing a controversial deal with Vivint in July 2015. This deal involves a complicated transaction with Vivint and TerraForm Power (TERP, Financial). The latter is a company that often buys developed projects from SunEdison. Guru, and now activist shareholder,Ă‚ David Tepper (Trades, Portfolio) has been railing against the deal.
It appears Einhorn is now also fed up with SunEdison's performance. The Wall Street Journal reported the investor has secured a board seat. According to Reuters, Einhorn is now looking to sell the company's assets or even the entire company itself. The latter is somewhat suprising to me as it seems unlikely a sale at the current price will lead to great returns for SunEdison.
SunEdison is currently looking quite attractive on a number of value metrics. It trades at 0.6x book value and 0.3x sales. EBITDA is virtually nonexistent and the company's TTM cash flow is negative. Meanwhile, at first glance its $11.7 billion debt load appear to be a big problem, but it's interesting to read back over Einhorn's comments on the company back in 2015 (emphasis mine):
...SunEdison consolidates both TerraForm Power and TerraForm Global on its GAAP statements. The complicating result is two-fold: First, when SunEdison sells a project to TerraForm Power or TerraForm Global it bears the operating costs but doesn’t get to book the revenue from the sale. The result is the appearance of an operating loss. Second, TerraForm Power and TerraForm Global use nonrecourse project finance debt to fund the purchases and the debt appears on SunEdison’s balance sheet. The result is that SunEdison appears to be heavily levered and losing money. From a GAAP perspective that’s true, but from an economic perspective it is not. Nonetheless, this hasn’t stopped some wise guys from dubbing it “SunEnron...
It's Einhorn's specialty to invest in things people don't understand. Many of the investment ideas Greenlight Capital has presented in the past involve some kind of misunderstanding on the market's part of the real underlying earnings power or asset value of a specific company. Einhorn has made his reputation on it and earned nearly 20% a year on the back of this strategy. SunEdison's management, which had ambitious and expansive plans prior to mid-2015, has taken its foot off the gas pedal a little bit to ease market concerns. This hasn't helped the share price, though.
While Einhorn's comments date back to mid-2015, they are still interesting to get an idea of what economics look like when looking through the GAAP numbers.
...we believe that SunEdison’s development business is poised to have economic earnings in 2016 of about $1.34 per share, assuming that TerraForm Power and TerraForm Global do not regain access to the capital markets...
TerraForm Power and Terraform Global will likely continue to struggle to regain access to the capital markets, so let's stick to the $1.34 per share. What kind of forward earnings are we looking at? At $1.34 per share, this suggests a forward earnings multiple of 2x! A rare find in the current market, where even after sizeable declines the S&P 500 is trading at an avereage P/E of 19x.
Disclosure: Long GLRE.
