SunEdison (SUNE, Financial) recently concluded a significant production of 383 megawatts, an increase of 30% compared to the last quarter. The company used 295 megawatts of that power in developing TerraForm Power for growing other prospective yield vehicles.
A strong pipeline
SunEdison did exit the quarter with approximately 470 megawatt of power development project under development. Further, its robust and well diversified project pipeline has currently exceeded 5 gigawatts, with the addition of 973 megawatts to its pipeline during the quarter, and approximately 75 megawatt of addition per week.
The impressive power production results for the quarter signifies the solid growth strategy of the company, coupled with a strong balance sheet to support the future growth investments.
SunEdison is continuously making impressive progress in its residential business, where it surpassed its own expectations and delivered 24 megawatts in the quarter. Also, SunEdison was successfully able to negate the effects of the global declining oil and natural gas prices on power generation.
In the quarter, SunEdison added approximately 1 gigawatt to its development pipeline and these are innovative additional projects in spite of the decline in Brent oil prices to $57 from $95 a barrel in the quarter.
The effective growth efforts of SunEdison in expanding its power portfolio, despite a sharp fall in the global oil and gas prices indicate the robust development schedule designed by the company to hedge against the falling oil and gas prices worldwide.
During the first quarter of 2015, SunEdison retained the key projects on its robust balance sheet for the estimated yield vehicle and in line with its earlier made promise. During the second quarter of 2014, SunEdison aimed at continuing the development while also concluding the IPO of its semiconductor business. During the third quarter of 2014, SunEdison constituted an IPO yield vehicle and developed TerraForm Power.
These two key transactions only delivered approximately $5 billion of value that include nearly $2.7 billion for the shareholders of the company. Further, during the fourth quarter of 2014, SunEdison declared the filing of a private S-1 for second Yield Co coupled with its aim to acquire the foremost sovereign wind development company First Wind for approximately $2.4 billion. According to Daniel Shurey, an analyst at Bloomberg New Energy Finance, this deal impressively positions TerraForm in fairly a beneficial position considering the prospective capacity additions.
More positives
SunEdison is continuously driving solid growth with its development work concluding at 467 megawatts, comprising of approximately 312 megawatts which is believed to be dropped into its vehicles in the approaching six months.
The strategic development of TerraForm Power and the planned future acquisition of First Wind are expected to deliver impressive top line growth and superior shareholder returns.
Going forward, there’s a solid organic growth in the company’s development business segment. SunEdison enhanced its project pipeline to 5.1 gigawatts by the quarter end, through the addition of approximately 1 gigawatt of gross capacity. Its backlog expanded to 2.6 gigawatts. For the quarter, it currently has 1.1 gigawatts of expansion opportunities, excluding the pipeline of backlogs that it developed post the key First Wind acquisition concluded in January.
SunEdison also has plans to develop a strategic alliance with local renewable energy company, Renova Energia S.A., to expand solar photovoltaic projects in the country. This is a 50-50 joint venture agreement under which the companies are estimated to set up nearly 1 GW (gigawatt) of solar projects in the near future and supply the electricity produced to the Brazilian Regulated Electricity Market.
The continued robust efforts of SunEdison to grow its production capacity, including the planned agreement with Renova Energia S.A. to develop solar photovoltaic projects in the country, is forecasted to enable SunEdison to lead its core competition and deliver impressive shareholder returns.
According to Bloomberg, SunEdison is investing approximately $30 million in building a solar panel plant to produce photovoltaic modules and key tracking systems. This major facility is estimated to get ready by 2016 with a power generation capacity of about 140 MW a year.
Now, SunEdison holds a Zacks Rank #4 (Sell) compared to its rival Ambarella Inc. (AMBA ) having a Zacks Rank #1 (Strong Buy), which is believed to be a higher-ranked stock and hence, worth considering.
SunEdison is investing significantly into the development of major photovoltaic tracking systems and related modules, the benefits from which are expected to be partially offset by a tough competition from its key rivals such as Ambarella Inc.
Going forward, Merrill Lynch strongly recommends SunEdison as the top clean tech picks with solid cash generation capacities of the company, owing to the major growth initiatives planned by SunEdison along with its extremely realistic valuation, having the Merrill Lynch price target of $32, greater than the consensus target at $29.83.
Conclusion
Overall, SunEdison appears exciting for the long-term investors looking at the significant planned future growth investments. However, the stock does not seem appealing for the short-term investors with poor profit margin of -47.51%. The PEG ratio of -1.090 depicts no growth but decline compared to notable industry’s average growth ratio of 1.07. SunEdison is also hugely debt-laden with a significant total debt of $7.27 billion compared to extremely weak total cash position of $945.50 million only, restricting the company to make future growth investments.
