Shares of SunEdison (SUNE) soared more that 8% in Wednesday’s morning trade on rumors that General Electric (GE) had shown interest in buying the solar power company. GE reportedly denied the rumors but shares ended 5% up anyway.
Some of the optimism surrounding the shares may be attributed to SunEdison’s expansion in India, where it is developing two solar projects with capacity of 241 kilowatts (kW) and 159 kW in collaboration with central and state government agencies.
Another factor that can be linked to SunEdison’s 45.7% share price increase year-to-date is the increased demand for renewable sources of energy. Per the Solar Energy Industries Association (SEIA), in the second quarter of 2014, the U.S. solar energy industry grew 21% year over year to reach 1,133 megawatt (MW). Notably, 53% of all new electricity generation came from solar energy in the first half of 2014.
Also, recently, Google (GOOGL) invested approximately $145 million in SunEdison through equity funding.
Moreover, SunEdison swung to a profit in the second quarter of 2014 on a 36% year-over-year increase in solar project sales.
Although SunEdison’s growing exposure to the solar energy market is encouraging, project development requires considerable time and investments. Hence, any delay or inability to sell these projects at desired prices could impact liquidity.
Moreover, SunEdison has a highly leveraged balance sheet. The company exited the second quarter with cash and cash equivalents of $954.7 million and a long-term debt (excluding current portion) of $4.91 billion.
Going forward, the pricing environment and competition from SunPower Corp. (SPWR) and First Solar Inc. remain headwinds.
Currently, SunEdison has a Zacks Rank #3 (Hold).
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