On Dec 6, 2014, Zacks Investment Research downgraded SunEdison Inc. (SUNE) to a Zacks Rank #5 (Strong Sell). Going by the Zacks model, companies holding a Zacks Rank #5 are likely to underperform the broader market.
Why the Downgrade?
SunEdison reported a wider-than-expected loss in the last reported quarter (third-quarter of fiscal 2014). SunEdison reported non-GAAP loss per share of 68 cents, which was significantly wider than the Zacks Consensus Estimate of a loss of 24 cents and compared unfavorably with breakeven results reported in the year-ago quarter.
On top of that, the company exited the last reported quarter with cash and cash equivalents of $841 million compared with $954.7 million in the previous quarter. Total debt (excluding current portion) stood at $5.27 billion. The company used $276.3 million cash in operations.
Also, SunEdison lowered the fiscal 2014 forecast. During the period, the company expects solar energy system sales volume in the range of 260 to 300 MWs, down from the previous forecast of 290 to 320 MWs. The company anticipates average project pricing to range between $2.50/watt and $3.00/watt for solar energy systems (previously $3.10-$3.40 per watt).
As a result of these bearish factors, there have been frequent downward estimate revisions of late. In fact, the Zacks Consensus Estimate for fourth-quarter 2014 dropped 25% to a loss of 35 cents per share over the last 30 days. For 2014, all the four estimates were lowered over the same time frame, lowering the Zacks Consensus Estimate by more than 80% to a loss of $1.09 per share.
Last quarter, the company posted a negative earnings surprise of 183.3%. It is worth noting that SunEdison has underperformed the Zacks Consensus Estimate in three out of the four preceding quarters with an average negative earnings surprise of 142.3%.
It’s also a fact that solar projects require considerable time and investment and any delay or inability in selling these projects at desired prices could affect liquidity. The pricing environment and a highly leveraged balance sheet remain other concerns for SunEdison. Competition from SunPower Corp. and First Solar Inc. further adds to its woes.
Stocks to Consider
Not all Technology stocks are performing as poorly as SunEdison. We recommend Apple Inc. (AAPL), Micron Technology (MU) and Avago Technologies Ltd. (AVGO), all of which have a Zacks Rank #1 (Strong Buy).
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