SunEdison Down To Strong Sell: Should You Dump It?

On Dec 23, 2014, Zacks Investment Research downgraded SunEdison Inc. SUNE to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

SunEdison reported wider-than-expected loss in the recently reported third-quarter fiscal 2014. The company's non-GAAP loss per share of 68 cents was significantly wider than the Zacks Consensus Estimate of 24 cents loss and compared unfavorably with breakeven results in the year-ago quarter.

Additionally, the company exited the quarter with cash and cash equivalents of $841 million compared with $954.7 million in the previous quarter. Total debt (excluding current portion) came in at $5.27 billion. The company used $276.3 million cash in operations.

Also, SunEdison lowered the fiscal 2014 forecast. The company now expects solar energy system sales volume in the range of 260 to 300 MWs, down from the 290 to 320 MWs range. The company anticipates average project pricing to range between $2.50/watt and $3.00/watt for solar energy systems (previously $3.10–$3.40 per watt).

As a result, there have been frequent downward estimate revisions of late. In fact, the Zacks Consensus Estimate for fiscal 2014 dropped 3.4% to a loss of 30 cents over the last 60 days. For 2014, all the four estimates were lowered over the same time frame, lowering the Zacks Consensus Estimate by more than 80% to a loss of $1.09.

In the third quarter, SunEdison posted negative earnings surprise of 183.3%. It is worth noting that the company has underperformed the Zacks Consensus Estimate in three out of the four trailing quarters with an average negative earnings surprise of 142.3%.

We would like to remind investors that solar projects require considerable time and investment and any delay or inability in selling these projects at desired prices could affect liquidity. The pricing environment and a highly leveraged balance sheet are the other concerns for SunEdison. Competition from SunPower Corp. and First Solar Inc. further adds to its woes.

Stocks to Consider

Though we do not currently recommend SunEdison, some technology stocks that are performing well include Ambarella Inc. AMBA, Avago Technologies Limited AVGO and AXT Inc. AXTI. All these stocks sport a Zacks Rank #1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
AVAGO TECHNOLOG AVGO: Free Stock Analysis Report
 
SUNEDISON INC SUNE: Free Stock Analysis Report
 
AMBARELLA INC AMBA: Free Stock Analysis Report
 
AXT INC AXTI: Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research