Both 8point3, First Solar Should See Further Downside Amid Divestiture News

8Point3 Energy Partners LP CAFD, a joint venture formed by First Solar, Inc. FSLR and SunPower Corporation SPWR, has significant “veiled risks” due to its high payout ratio, lack of debt controls and lack of growth, Axiom’s Gordon L. Johnson said in a report.

Trouble At 8Point3

Apart from the bank loans repaid to terminate two residential lease financings and the Quinto Solar project prior to its IPO, 8Point3 “has not made a single principal debt payment since going public,” Johnson noted. On the other hand, 8Point3’s YieldCo peers have made debt payments each year since 2014.

8Point3’s projection of its 2017 cash flow available for distribution suggests that “something wouldn’t get paid out, implying a “default” to a sponsor — kryptonite to any YieldCo’s future,” the analyst pointed out.

8Point3 has merely $14 million in cash. Moreover, the only option it has to fund incremental acquisitions is via dilutive equity raises, since neither First Solar nor SunPower appear to be in a “strong enough financial position to give CAFD a favorable price.” Therefore, 8Point3’s growth as well as debt repayment seem “structurally impaired,” Johnson mentioned, adding, “In short, until a path to growth is succinctly clarified, we see CAFD as a high-risk YieldCo asset.”

Impact On First Solar

Roughly $4 per share of First Solar’s share price is tied to 8Point3, since the company has a 28 percent stake in the YieldCo, “which, presumably, at present, has to issue equity to fund each drop-down/acquisition,” the analyst stated. If the equity markets do not support this, “we believe growth would stagnate, pushing up the required dividend yield, thus weighing on the shares.”

Johnson has a Sell rating and a price target of $21 on First Solar.

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