On Jan 7, Zacks Investment Research downgraded SunEdison Inc. (SUNE) to a Zacks Rank #5 (Strong Sell) and is therefore, likely to underperform the broader market, according to the Zacks model.
Why the Downgrade?
With the crude oil prices falling below $48 a barrel yesterday — the lowest since Apr 2009 — it seems the troubles for the solar stocks are far from over. The decline in oil prices has made renewable energy stocks rather unattractive, dragging down solar stocks on the whole.
Shares of the world’s leading developer of solar energy declined nearly 6.1% in yesterday’s trading session as crude oil process continued to plunge. Prices dropped more than 55% since last year’s peak reached in late June, given the sluggish consumption growth, OPEC's decision to maintain production at the current level as well as robust production from North American shale fields.
To add to the woes, SunEdison has been witnessing frequent downward estimate revisions, since it posted wider-than-expected loss for third-quarter 2014 and lowered the full-year forecast. The company reported non-GAAP loss per share of 68 cents, significantly wider than the Zacks Consensus Estimate of a loss of 24 cents and compared unfavorably with breakeven results in the year-ago quarter.
Also, SunEdison lowered the fiscal 2014 forecast. The company expects solar energy system sales volume in the range of 260 to 300 MWs, down from 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).
This resulted in downward estimate revisions. In fact, the Zacks Consensus Estimate for fourth-quarter 2014 dropped 25% to a loss of 30 cents per share over the last 60 days. For 2014, all the four estimates moved south over the same time frame, lowering the Zacks Consensus Estimate by more than 79% 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 is 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 the other concerns for SunEdison. Competition from SunPower Corp. and First Solar Inc. further adds to its woes.
Stocks to Consider
Considering the impact of declining crude oil prices on solar stocks, we would advice against investing in these stocks presently. However, in the broader Technology sector investors may consider Apple Inc. (AAPL), Micron Technology (MU) and CEVA Inc. (CEVA). All these stocks have a Zacks Rank #2 (Buy).
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