SunEdison's Upside Scenario Is Enormous: Needham Digs In

In a report published Wednesday, Needham analyst Y. Edwin Mok reiterated a Buy rating on

, while raising the price target from $30 to $31. The analyst believes that the management has proven its ability to adapt quickly to the market environment and is expected to be able to achieve long-term success. The company recently completed two financing rounds, which the analyst believes was needed to fund the robust growth target for 2016, while bolstering the balance sheet. "The recently sharp decline of the stock price reflects increased investor concern over its yieldco-based business model in a falling yieldco share price environment," Mok stated, while elaborating that the "latest moves ensure that SUNE and its yieldcos can execute their plans for drop down without the need to raise additional equity, giving investors visibility for growth through 2016." Given the challenging equity market, the company is likely to continue to face pressure as it scales its business up, although the analyst expressed his confidence in the management being able to deliver long-term success. SunEdison had announced on August 17 that it had formed a $1 billion warehouse facility in conjunction with West Street Infrastructure Partners. The warehouse, which is expandable to $2 billion, is intended for the construction of storage of renewable assets before dropdown to

. According to the Needham report, "With this transaction, SUNE and TERP have in aggregate raised a total of $3.0B for warehousing facilities, with an opportunity to add another $2.5B by expanding the warehouses." With this warehouse facility, the analyst believes that both SunEdison and TerraForm Power would be able to address investor concerns regarding growth. In addition, the analyst believes that SunEdison and its yeildcos would now be able to achieve their respective growth targets, while "generating attractive economics for both the various public shareholders and warehouse investors." SunEdison has also announced the issuance of 6.75 percent convertible preferred stock worth $650 million. This public offering is scheduled to close on August 21 and raise net proceeds of $626.1 million. "We believe the preferred capital raised with a 6.75 percent dividend rate is a reasonable alternative to raising common equity or debt. However, with a short runway to the conversion price of $17.62/sh, if the stock rebounds, the potentially dilutive effect to common could be large," Mok added.