How Safe Is SunEdison Inc's Stock?

SUNE Net Total Long Term Debt (Quarterly) Chart
SUNE Net Total Long Term Debt (Quarterly) Chart

SUNE Net Total Long Term Debt (Quarterly) data by YCharts .

To be fair, a lot of this debt is in its yieldcos, TerraForm Power and TerraForm Global , but the overall leverage on SunEdison's balance sheet is getting out of hand.

To make matters worse, lenders are starting to back away from the company. A recent conversion of convertible debt to regular debt came with a variable interest rate with a floor of 11%. That's incredibly high for a renewable energy company. And investors balked at providing more loans to fund acquisitions like Vivint Solar and Globeleq Mesoamerica Energy .

Debt is necessary to fund both construction and long-term ownership of renewable energy projects. But debt loads that are too high can hamper a company's ability to operate efficiently. And that's exactly what's happening at SunEdison.

Where's the money?

A large debt load wouldn't be a problem if SunEdison could justify it with high levels of profit and/or free cash flow. But you can see that both are dropping as the company reports billions in losses.

SUNE Net Income (TTM) data by YCharts .

If there's one thing that makes SunEdison unsafe, it's that management hasn't shown the ability to make money building renewable energy projects. If you can't do that, the entire model falls apart.

Safer bets in the SunEdison family

Even within the family of SunEdison companies, which includes yieldcos TerraForm Power and TerraForm Global, there are safer bets than SunEdison itself. The two yieldcos at least own projects with long-term contracted cash flows and don't have to acquire growth to continue paying their dividends.

SunEdison, on the other hand, is teetering toward bankruptcy. Lenders are no longer interested in funding renewable energy acquisitions, and the number of buyers for projects is dwindling.

This doesn't mean the yieldcos are without risk. Moody's highlighted the fact that it could be dragged into bankruptcy if SunEdison is. But from a safety perspective, they're much better than SunEdison. As a longtime renewable energy investor, SunEdison simply isn't a stock I would buy into because the future looks dimmer by the day.

A secret billion-dollar stock opportunity

The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early, in-the-know investors! To be one of them, just click here .

The article How Safe Is SunEdison Inc's Stock? originally appeared on

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2016 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More