Credit Suisse Defends SunEdision, Says Sell-Off On Margins Is Unwarranted

Shares of Sunedison Inc SUNE are down more than 21 percent on Thursday trading, after the company missed earnings estimates in the morning, on the back of lower than expected third party sales and a higher mix of retained projects.

For the second quarter of 2015, the company reported a net loss of ($0.67) per share on revenue of $455 million, while the Street was expecting a consensus net loss of ($0.45) per share on sales of $403.77 million.

Despite the miss, Credit Suisse analysts Patrick Jobin, Maheep Mandloi and Jennifer Ky reiterated an Outperform rating and $45.00 price target on the stock following the earnings call. They argue there is “a fundamental disconnect between the stock performance and the (…) stellar execution of the organic project development business that exceeded expectations on all metrics, (…) increased disclosure to pacify liquidity concerns, and the company making the (right) decision to ensure accretive drop-down economics.”

In fact, the experts note, the drop in the stock price provides investors with a buying opportunity, even in spite of the vast volatility.

The Issue Causing Consternation

According to the note, investors are somehow frustrated with TerraForm Power Inc TERP not having raised its 2016 guidance, and with Sunedison having demonstrated it could still drop down assets at highly attractive levered yields (below 10 percent) to TerraForm, “by dialing back the cash contribution (i.e. gross margin) at SUNE's DevCo.” However, the analysts note that subsidizing drop economics calls TerraForm’s cash generation into question, even in spite of a higher GP value.

Posted In: Analyst ColorEarningsNewsPrice TargetReiterationAnalyst RatingsMoversTechCredit SuisseJennifer KyMaheep MandloiPatrick Jobin
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