) increased 5.3% yesterday, after the company declared that its
"yield co" unit TerraForm Power Inc. is planning to raise $50.0
million from an Initial Public Offering (IPO). However, the details
of shares and pricing remain undisclosed.
Following this development, TerraForm will be a newly formed
dividend-paying company and will purchase renewable-energy assets
from the parent company. SunEdison has appointed Goldman Sachs,
Barclays and Citigroup to act as joint book runners for the deal.
In the initial tranche, TerraForm will own a portfolio in the U.S.,
Canada, the U.K. and Chile of 524 megawatts of solar farms. We
believe that the IPO will boost operating leverage, cost synergies
and liquidity of SunEdison.
A yield co is a publicly-traded company that is formed to own
operating assets that produce cash flow, which is then distributed
to investors as dividends. The yield co model enables the
segregation of assets related to stable operating cash flows, which
is therefore more attractive for investors. It is therefore a safer
and cheaper way to finance growth and meet the rising demand for
Thus, we believe that the current strategy bodes well for SunEdison
and will help it to emerge as a pure-play solar project developer.
Moreover, SunEdison plans to utilize the proceeds to deleverage its
SunEdison decided to divest its semiconductor business to focus on
its core solar power business. The decision was also prompted by
the lower-than-expected demand for its semiconductor wafers.
It is worth noting that SunEdison reported an 11.3% year-over-year
decline in revenues from its semiconductor business in the
last-reported quarter. At the same time, the solar business did
exceptionally well, growing 86.8% year-over-year.
Though SunEdison's growing exposure to the solar energy market is
encouraging, project development requires considerable time and
investments. Hence, any delay or inability in selling these
projects at desired prices could have an impact on liquidity.
Moreover, SunEdison has a highly leveraged balance sheet. The
company exited the first quarter with cash, cash equivalents and
restricted cash of $526.6 million compared with $643.6 million in
the previous quarter. Long-term debt (excluding current portion)
was $3.49 billion.
Going forward, the pricing environment and competition from
) and First Solar Inc. remain the headwinds.
Currently, SunEdison has a Zacks Rank #4 (Sell). Some better-ranked
stocks worth considering are
Juniper Networks, Inc.
), both of which sport a Zacks Rank #2 (Buy).
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SUNEDISON INC (SUNE): Free Stock Analysis
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