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SunEdison (SUNE) Shares Fall as Daniel Loeb Sells Stake

Shares of SunEdison Inc.SUNE went down nearly 7.5% in yesterday's trade following the news that hedge fund manager Daniel Loeb's Third Point LLC exited its position in the company in the third quarter, the same period during which the solar company posted dismal quarterly results that sent its shares plunging. According to a regulatory filing on Friday, Third Point sold 12.4 million shares in SunEdison at the end of second quarter valued at $370.9 million.

Third Point decided to slash its stake in SunEdison steadily building its position in the company. SunEdison shares are down about 76.6% year-to-date. Third Point is among the first of the big hedge fund firms to report positions as of the end of September.

Making matters worse for the renewable energy producer, a Bloomberg report quoted negative comments by hedge fund manager David Einhorn who is also the Chairman of Greenlight Capital, SunEdison's biggest investor.

According to Bloomberg, Einhorn is slashing his stake in SunEdison. The move comes as Greenlight's main hedge fund faced huge losses this year through October. According to a filing with the SEC, subject to market conditions and approvals, the company intended to cut its stake by 6.2 million shares in the third quarter. As a result, Einhorn now holds approximately 18.6 million shares in SunEdison.

The troubled renewable energy producer's share price has plunged more than 85% since Jul 20 when it announced the acquisition of Vivint Solar Inc. The decline reflects investors' concerns about the prospects of the takeover.

Is SunEdison in Trouble?

SunEdison recently posted adjusted loss (including stock-based compensation but excluding all one-time items) of 78 cents per share, much more than the Zacks Consensus Estimate of a loss of 62 cents as well as the year-ago quarter loss of 68 cents. The disappointing bottom-line performance mainly resulted from the significant increase in general and administration (G&A) as well as interest expenses due to a higher debt burden.

The company's revenues of $476 million were also soft, increasing just 1.5% year over year although topping the Zacks Consensus Estimate of $430 million.

Further, the disappointing quarterly results by SunEdison's YieldCos - TerraForm Power Inc. TERP and TerraForm Global Inc. GLBL - were responsible too for this decline. A YieldCo is a publicly-traded company formed to own operating assets that produce cash flow, which is then distributed among investors through dividends. In simple words, YieldCos are responsible for buying finished projects developed by the parent company, thereby freeing up capital for the parent company to spend on more projects.

TerraForm Power reported a loss of 3 cents per share for third-quarter 2015 comparing unfavorably with the Zacks Consensus Estimate of earnings of 28 cents. On the other hand, despite incurring narrower-than-expected loss, TerraForm Global's revenues of $29 million missed the Zacks Consensus Estimate of $34 million.

SunEdison has been on an acquisition spree since the last year in order to strengthen its position as a renewable energy developer. However these initiatives are now being considered ineffective as SunEdison does not have the financial strength to fund the projects.

The acquisitions have taken a toll on the company's balance sheet with total outstanding debt of nearly $9.77 billion at the end of third-quarter 2015, up from $9.17 billion at the end of second-quarter 2015. The company exited the quarter with cash and cash equivalents of only $2.39 billion as against $1.29 billion in the previous quarter. During the first three quarters of 2015, the company used $1.14 billion of cash for operational activities.

Investors are, therefore, doubtful about whether the company can return value to shareholders through enhanced share repurchase or dividend.

Thus, it is hardly a surprise that investors are concerned about SunEdison's growth prospects.

Last Words

Though all odds are currently against SunEdison, the company has made attempts to create new ownership and financing structures, such as the ones with Dominion and JP Morgan's clients, to finance its energy projects while reducing risks for investors.

Furthermore, we believe that the world's leading renewable energy developer will benefit from the increase in demand for solar energy, which along with the recent divestment of the semiconductor business, will enable it to further build on its core competencies.

Currently, SunEdison has a Zacks Rank #3 (Hold). Investors may instead consider Facebook, Inc. FB from the wider tech space, carrying a Zacks Rank #2 (Buy).

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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.

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