Sunedison Has Long-Term Value Despite Cash Challenges, Avondale's Morosi Says

Avondale's Michael Morosi maintained a Market Outperform rating for Sunedison Inc SUNE, with a price target of $7, after the court’s Appaloosa decision paved the way for an acquisition of the assets of Vivint Solar Inc VSLR.

The Delaware Court of Chancery has denied Appaloosa management's attempts to block the Vivint acquisition. With this, SunEdison appears to be “finally past the obstacles to complete the acquisition,” analyst Michael Morosi said.

Although there would be issues in the successfully integration of Vivint’s assets, the court’s decision removes the uncertainty overhang on SunEdison’s shares since the acquisition was announcement on July 20. Morosi terms this as “an incremental positive for the stock.”

“The Vivint Solar operating portfolio consists of ~470MW of residential solar projects. Based on the negotiated purchase price of $799M, the company is paying $1.70/W. We view this as a fair price for high quality, high-value residential PPAs and consistent with precedent transactions,” the analyst commented.

He added that TerraForm Power Inc TERP is “also currently subject to a take-or-pay agreement, which still may be contested in court.”

While the court’s decision removes a key overhang, SunEdison management would have a challenging task of setting the company on “a path to sustainable cash flow generation.” Management must now focus on integration and executing on its core utility scale operations, which have recently been under pressure due to the company's strained financial position.

“Having said that, we continue to see meaningful long-term value in the company's shares at current levels,” Morosi mentioned.