Shares of SunEdison Inc. ( SUNE ) surged 11.8% in Thursday's trade as the company swung to profit in the second quarter of 2014.
SunEdison reported non-GAAP earnings per share of 12 cents, which not only came ahead of the Zacks Consensus Estimate of a loss of 36 cents but also improved from a loss of 19 cents loss reported in the year-ago quarter.
SunEdison reported GAAP revenues of $646.2 million, up 61% year over year. Non-GAAP revenues (adjustments related to Solar Energy business from direct sales and Financing sale-leasebacks) increased 13.4% year over year to $557.5 million. The Zacks Consensus Estimate was $604.0 million. The year-over-year increase in revenues was aided by higher solar project sales (up 36.3% year over year), which offset lower sales of semiconductor materials (down 10.6% year over year).
It is worth noting that SunEdison completed its "yield co" unit TerraForm Power Inc.'s Initial Public Offering (IPO). The current strategy bodes well for SunEdison and will help it to emerge as a pure-play solar project developer.
SunEdison's non-GAAP gross margin was down from 5.9% reported in the year-ago quarter to 4.6%. The company's non-GAAP operating loss of $108.9 million in the quarter significantly deteriorated from $67.0 million operating loss reported in the year-ago quarter. The wider year-over-year operating loss was due to higher operating expenses (up 40.4% year over year) and holding costs related to unsold projects.
SunEdison reported non-GAAP net income of $33.7 million or 12 cents per share compared to a loss of $42.4 million or 19 cents per share.
SunEdison exited the second-quarter with cash and cash equivalents of $954.7 million compared with $463.4 million in the previous quarter. Long-term debt (excluding current portion) stood at $4.91 billion. The company used $78.6 million cash in operations.
For the third quarter, SunEdison expects solar energy system sales volume in the range of 70 to 80 megawatts (MWs). It expects to complete 270 to 310 MWs solar energy systems. The company expects average project pricing to range between $2.60/watt and $3.00/watt for solar energy systems.
SunEdison has also set its goal for 2014 as well. During the period, the company expects solar energy system sales volume in the range of 290 to 320 MWs while it expects to complete 1000 to 1150 MWs solar energy systems. The company expects average project pricing to range between $2.50/watt and $3.00/watt for solar energy systems in 2014.
SunEdison swung to profit in the second quarter and revenues also compared favorably on a year-over-year basis. Nonetheless, higher operating expense remains a concern.
We believe SunEdison will benefit from the rise in demand for solar energy and the divestment of the semiconductor business will enable it to concentrate on its core competencies. Moreover, its recent partnerships and cost reduction initiatives are expected to expand margins.
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 affect liquidity.
Nonetheless, the pricing environment and a highly leveraged balance sheet remain concerns for the company. Competition from SunPower Corp. ( SPWR ) and First Solar Inc. ( FSLR ) also remain headwinds.
Currently, SunEdison has a Zacks Rank #4 (Sell). A better-ranked stock worth considering is NVIDIA Corporation ( NVDA ), which holds a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free reportNVIDIA CORP (NVDA): Free Stock Analysis ReportFIRST SOLAR INC (FSLR): Free Stock Analysis ReportSUNEDISON INC (SUNE): Free Stock Analysis ReportSUNPOWER CORP-A (SPWR): Free Stock Analysis ReportTo read this article on Zacks.com click here.