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JP Morgan Hikes SunEdison Price Target To $21: Here's Why

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  • Sunedison Inc (NYSE: SUNE) has seen an increase of 27.36 percent in its share price over the last five trading days, from the low of $6.90 on October 2.
  • JP Morgan’s Mark Strouse has maintained an Overweight rating on the company, while raising the price target from $19 to $21.
  • The price target has been raised to reflect “a higher than previously estimated value” for SunEdison’s DevCo business.

Analyst Mark Strouse explained that the previous cash flow estimates had assumed that SunEdison would defer gross margins on the projects it sold to warehouses. However, the company defers gross margins only before such projects are complete.

“Since SUNE intends to only sell completed projects to warehouses in the future, we are revising our cash flow estimates, eliminating the gross margin deferrals,” Strouse elaborated.

Demand for solar and wind energy is expected to grow and given that SunEdison is a “leading global developer of renewable generating capacity,” the company is expected to benefit from this opportunity.

According to the JP Morgan report, “Global wind and solar generating capacity should reach about 1.4TW as soon as 2020, yielding up to ~$170 billion of cash available for distribution.”

Given that the company has access to third party funds through warehouse facilities, SunEdison is capable of developing projects for future sale or to drop down to the yieldcos, without any near-term capital constraints.

While capital constraints could be a significant risk, Strouse believes that “liquidity issues can be remedied over time, and investor sentiment can turn positive very quickly regarding the quality of the asset pipeline and the visibility into future growth it yields.”

Strouse therefore believes that the recent selloff in the stock was overdone.

Latest Ratings for SUNE

DateFirmActionFromTo
Mar 2016Stifel NicolausTerminates Coverage OnHold
Mar 2016Axiom CapitalMaintainsSell
Mar 2016Avondale PartnersDowngradesMarket OutperformMarket Perform

View More Analyst Ratings for SUNE
View the Latest Analyst Ratings

 

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