Updated Research Report on SunEdison - Analyst Blog

On Mar 14, 2014, we issued an updated research report on SunEdison Inc. SUNE post the fourth-quarter results. Although SunEdison's top line increased on a year-over-year basis, higher-than-expected operating expenses were responsible for the disappointing bottom-line performance.

Despite the fact that SunEdison's growing exposure in the solar energy market is encouraging, project development require considerable time and investments. Hence, delay or inability in selling these projects at desired prices could keep liquidity under pressure.

In addition to that, SunEdison's solar wafer business is weakening. A continued excess of polysilicon supply is adversely the affecting sales of solar wafers. The company is continually lowering prices to maintain market share, which, in turn, is affecting margins.

Moreover, SunEdison has a highly leveraged balance sheet. As of Dec 31, 2013, the company's net debt amounted to $305.1 million, which compared unfavorably with a net debt of $135.5 million in the previous quarter.

However, we believe SunEdison will benefit from the rise in demand for solar energy and the semiconductor business IPO (initial public offering) should further enable it to concentrate on its core competencies. Moreover, its recent partnerships and cost reduction initiatives are expected to expand margins.

Moreover, another good sign is the growth of the solar market (PV installations) across the U.S., China, Japan, India, Middle East, Africa, Latin America, Australia and Southeast Asia. The surge in demand from these regions could mitigate lower demands in Europe, thus helping the global solar industry to grow.

According to a recent survey by market research group IHS, global PV installations are set to rise from 3.2 MW in 2012 to 2.3 GW in 2017. As a result, the shares of PV installments in the commercial segment will increase from 5.0% in 2012 to 40.0% in 2017.

Additionally, SunEdison's plan to spin off its semiconductor businesses into a separate entity via an IPO will help it to emerge as a pure-play solar project developer — its core segment — and bode well for the future. Moreover, reduction in debt level will deleverage its balance sheet.

Currently, SunEdison has a Zacks Rank #3 (Hold). Investors can consider other better-ranked-stocks such as Juniper Networks JNPR, Lexmark International LXK and Micron Technology MU. All these stocks sport a Zacks Rank #1 (Strong Buy).