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Why Care about SunEdison and TerraForm’s Losing Spree?

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SunEdison and subsidiaries: The downfall

SunEdison (SUNE), TerraForm Power (TERP), and TerraForm Global (GLBL) have been in the news in recent weeks due to a massive outflow of funds. While investors in all solar power companies are anxiously awaiting the Fed’s decision on a rate hike, investors in these companies are also concerned about their financial health. In this series, we’ll see if any of these companies offer value investing opportunities.

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SunEdison and subsidiaries: Stock performance

SunEdison and TerraForm Power significantly outperformed the Guggenheim Solar ETF (TAN) as well as the broad-based SPDR S&P500 ETF (SPY) during the first half of 2015. Over the last few quarters, SunEdison (SUNE) has scaled its operations, diversified into wind and residential solar, and launched yieldcos, fueling its rally. However, a change in business model to keep projects on the balance sheet as well as debt-funded acquisitions dented its capital structure.

Concerns regarding SunEdison’s financial and operational health have resulted in a whopping 88% decline in SunEdison’s stock value in 2H15 up to December 2, 2015. TerraForm Power (TERP) lost 76% while TerraForm Global (GLBL) lost 72% between July 31, when it started trading, and December 2, 2015.

Methodology

In this series, we’ll try to find out if any of these companies present a value investing opportunity. Value investing is the strategy of picking stocks with perceived underpricing. For the sake of simplicity and understanding, we’ll do a simple analysis of assets and liabilities to come to our conclusion. Note that we’ll refer to SunEdison, consolidated excluding TERP and GLBL, as SunEdison moving forward in this series.

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