TerraForm Power Stock Approaching Fair Value, UBS Warns

• Shares of TerraForm Power Inc TERP have declined 64.35 percent in the last six months, hitting a low of $12.95 on November 12.
• Julien Dumoulin-Smith of UBS has downgraded the rating on the company from Buy to Neutral, while lowering the price target from $30 to $14.
• Dumoulin-Smith believes that shares can no longer be valued based on the company’s future growth prospects, and mentioned that a more conservation approach to valuation was warranted.

Analyst Julien Dumoulin-Smith expressed “substantial doubt about TERP’s ability to purchase assets on an accretive basis from its sponsor Sunedison Inc SUNE or third parties based on its 10+ percent dividend yield and deteriorating balance sheet.”

In addition, TerraForm has not reaffirmed its DPS guidance for 2016, due to uncertainties associated with the closing of the remaining transactions for Invernergy and Vivint Solar Inc VSLR.

Following recent disclosures regarding the Invernergy transaction, Dumoulin-Smith stated that TerraForm appears to have invested higher than anticipated capital into a warehouse, while it would need to raise more than $1 billion in capital to close the warehouse.

“Pro-forma 9/30 cash plus undrawn revolver appears sufficient to meet the obligations for the Vivint and Invenergy assets but will stress the balance sheet in a way that we had not envisioned for a YieldCo,” Dumoulin-Smith said.

In the event that the company is forced to complete the purchase of Invernergy and Vivint assets, but does not undertake any other transactions, shares are expected to trade close to the fair value.