Valuation Disconnect In SunEdison Will Lead To Material Upside

• Sunedison Inc SUNE shares have plunged 62 percent since December 21.
• Avondale's Michael Morosi maintained a Market Perform rating for the company, with a price target of $7.
• SunEdison’s catalyst is deferred and strategy muddled, Morosi stated.

Following the sharp pullback in SunEdison’s shares recently, its market cap is hovering around the $1B mark, which is $5B lower than its utility-scale peer First Solar, Inc. FSLR, analyst Michael Morosi said. He expects both companies to generate 3GW in 2016 at similar cash margins.

“While we were clearly early in upgrading SUNE, we maintain our conviction that this valuation disconnect will ultimately lead to material upside from current levels,” Morosi wrote. He added, however, that management would have to “advocate and execute on a clear strategy” in order to unlock shareholder value.

The analyst believes that “all options must be on the table” for the Board. The options include divesting the YieldCos and monetizing the IDRs at a significant discount, which would result in “a de-consolidation of reported financials and a clearer discussion of shareholder value creation going forward.”

The YieldCo industry’s next phase would involve “structurally lower distribution growth, making the return to a GP-driven valuation thesis highly unlikely,” Morosi added.