Shares of TerraForm Power, Inc. TERP plunged to a new 52-week low of $6.73 on Nov 25. This clean energy power plant operator eventually closed at $7.27, representing a year-to-date decline of 76.5% and a negative one year return of 78.1%. Average volume of shares traded over the last three months was more than 3,535K.
Why the Plunge?
TerraForm Power’s recent share price drop can be attributed to the recent rating downgrade of its parent company SunEdison Inc. SUNE from Neutral to Sell by Julien Dumoulin-Smith, an analyst at UBS Research. Management changes at TerraForm Power, one of SunEdison’s yieldcos, were cited as the reason behind the downgrade.
UBS Research stated that the downgrade was mainly due to the shocking turn of events earlier this week. According to the news, Brian Wuebbles, SunEdison’s executive vice president and Chief Financial Officer (CFO), will now serve as a Chief Executive Officer (CEO) of its yieldco TerraForm Power.
Until a permanent CFO is selected, Wuebbles will perform the role of the CFO and CEO in both the companies.
Although the change is part of management’s strategy to improve its overall operating structure and drive efficiency, the analyst remains skeptical about this decision as he believes that a mere management change cannot alleviate the parent company’s ongoing liquidity concerns and debt burden.
TerraForm Power’s not-so-encouraging third-quarter 2015 earnings also impacted the share price. The company reported a loss of 3 cents per share for the third quarter of 2015, which compared unfavorably with the Zacks Consensus Estimate of earnings of 28 cents.
Also, the company’s balance sheet with total debt (including current portion) of nearly $2.55 billion at the end of third quarter 2015, up from $2.23 billion at the end of second-quarter 2015, remains a concern for investors. The company exited the quarter with cash and cash equivalents of only $635.8 million as against $390.6 million in the previous quarter. During the first three quarters of 2015, the company generated only $105.3 million of cash for operational activities.
Additionally, estimate revisions have not been favorable. Over the past 30 days, the company witnessed three negative estimate revisions for fiscal 2015. The Zacks Consensus Estimate consequently moved down from earnings of 22 cents to a loss of 53 cents for fiscal 2015.
The current situation could remain a headwind for this Zacks Rank #5 (Strong Sell) company. Thus, we would advise investors to stay away from this stock for now.
Stock to Consider
Better-ranked stocks in the technology sector are Cadence Design Systems Inc. CDNS and Facebook, Inc. FB, sporting a Zacks Rank #1 (Strong Buy) and Zacks Rank #2 (Buy), respectively.
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