Shares of solar technology company, SunEdison Inc. (SUNE) gained 5.1% during yesterday’s trading following the company’s announcement that it will be buying new turbines to facilitate the development of 1.6 gigawatts (GW) of additional wind energy projects qualifying for the U.S. federal production tax credit (PTC).
The company also stated that the projects will be purchased by its yieldco company – TerraForm Power Inc. (TERP) – once ready for commercial operation. The news also helped TerraForm’s shares gain 2.2% yesterday.
We believe that the purchase of these PTC qualified turbines is in line with SunEdison’s strategy of diversifying itself from being a developer of solar energy to every renewable energy option.
The company took its first step in this direction in November last year when SunEdison and TerraForm jointly signed a definitive agreement to acquire the privately held wind power developer and operator, First Wind, for $2.4 billion. The acquisition, to be completed by the end of first-quarter fiscal 2015, will help SunEdison grow its presence in the U.S. wind energy market.
With the acquisition, SunEdison will get First Wind’s backlog project of more than 1.6 GW capacities, expected to be operational in 2016–2017, of which 1.4 GW has already been qualified under PTC. The company has already added these projects to TerraForm Power’s call list.
Furthermore, SunEdison will get an additional opportunity to develop approximately 6.4 GW of wind power projects. The company intends to quickly finish these projects and realize synergies.
The acquisition enabled SunEdison to raise its project installation guidance range for fiscal 2015 to 2.1–2.3 GW from 1.6–1.8 GW. The company revealed that the takeover will generate higher cash flows and asset management revenues, while shareholders will benefit from increased dividend from TerraForm.
SunEdison’s focus on expanding clean energy capabilities through acquisitions should drive its long-term growth. We believe that the demand for clean energy will increase manifold over the long term, and being the world’s leading developer of renewable energy, SunEdison is well positioned to capitalize on this opportunity.
Although SunEdison’s growing exposure in the renewable energy market is encouraging, any delay or inability to sell these projects at desired prices — which require considerable time and investment —could impact liquidity.
To add to its woes, SunEdison reported wider-than-expected loss for the third-quarter fiscal 2014. The company’s non-GAAP loss per share of 68 cents was significantly wider than the Zacks Consensus Estimate of 24 cents loss and compared unfavorably with breakeven results in the year-ago quarter. It is worth noting that the company has underperformed the Zacks Consensus Estimate in three out of the four trailing quarters with an average negative earnings surprise of 142.3%.
Currently, SunEdison carries a Zacks Rank #5 (Strong Sell).
Stocks to Consider
Considering the impact of declining crude oil prices on solar stocks, we would advise against investing in the stock presently. However, in the broader Technology sector, investors may consider Apple Inc. (AAPL) and CEVA Inc. (CEVA), both holding a Zacks Rank #2 (Buy).
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