Just noticed how clobbered this one is. anyone follow it?
After extensive due diligence*, it appears it’s due to a UBS downgrade.
*Went to Marketwatch and typed in the ticker. This was the top headline.
73% decline in one month due to a single downgrade. excellent conclusion. somebody hire this man!
on the surface it looks like a botched ipo in GLBL but why so much pain for SUNE? i’m having a hard time understanding how one of the leaders in the solar space is down 73% in a month on basically nothing but a managably sized acquisition in Vivint. i don’t think they have much China exposure so i’m a little lost on this one. not that it really matters, i have no position but it certainly looks good as an entry point for solar.
There is a VIC writeup from Nov 2014 on SUNE. It is a hedge fund hotel. I have never looked at this stock or been involved, but from my observation, when these crowded names go, they really go fast and hard. This company / stock must have some underlying issue but is also clearly a victim of Hedgegeddon 2015.
To be fair, he did list “silly market participants” as one of the risks.
Risks and Catalysts
With a target value 2x the current stock price we still see tremendous value in SUNE. So what can go wrong?
- Operational risk: SUNE management has shown tremendous value creating skills. Still, their agenda is ambitious. We do not take lightly the difficulty of competently executing their ramp to 3.9 GW of global project production over the next few years – especially as part of that ramp includes a move into wind power.
- Competition: We believe the global solar pie will continue to boom in the foreseeable future creating great opportunities for top-tier players like SUNE. But others are certainly not blind to this opportunity set. There is some risk, for example, that a wave of capital drives down returns for solar project acquisitions. We note that on FSLR’s recent conference call they commented that some players are getting more aggressive on new project bids in the expectation that yieldco’s like TERP create better exit pricing. We assume some compression in project economics but there is a risk we remain too optimistic.
- ITC expiry : At the end of 2015 the Investment Tax Credit is set to sunset from 30% to 10%. We assume that this occurs although there is always some chance Congress acts otherwise. We are not concerned by the ITC expiry for several reasons. First, SUNE/TERP can replace the ITC with debt and the economics are not catastrophic. Second, SUNE is confident that the current visible pipeline of solar project cost improvements will offset the ITC expiration. Finally, SUNE has a global project portfolio which diversifies their risk. There is a chance that we place too much faith in the ability of solar cost efficiencies to offset ITC expiry. Moreover, from a tactical perspective, while we assume ITC sunset, we are not sure the rest of the world does. Solar stocks tend to attract waves of generalist trader buying and selling which can frustrate the short-medium term equilibrium of fundamental value investors. If/when the ITC sunsets its possible SUNE and its brethren see a wave of selling/shorting despite what we view as a fundamental non-issue.
- Residual value: A significant part of the economics for SUNE/TERP projects depends on residual value. If a long term PPA contracts for 20 years of power then residual value is an estimate of the remaining value of the project’s life beyond that point (~10 years). We are confident that the projects should have residual value. Much of a solar project’s value depends on land/regulatory permitting/etc… which all remain even if you assume a wholesale replacement of production technology after two decades to modernize efficiencies. Still, we admit that our visibility and ability to verify projections with current data are weakest around the residual value factor.
- Regulatory backlash : Rumblings are emerging from conventional utilities about the threat posed by solar power. In particular, distributed/residential projects benefit from a pricing structure which arguably does not compensate utilities for providing grid access to solar users for when the sun doesn’t shine. Some kind of regulatory backlash against solar is an eventual possibility. We remain of the view that the economics of solar are sufficiently compelling that accomodation can be reached with the utilities without seriously impairing the solar opportunity.
- Silly market participants : This is both a risk and an opportunity. Solar stocks – SUNE included – attract waves of fast uninformed money. For example, before breaking out after announcing the First Wind deal, SUNE was being hammered down in correlation with oil prices. While SUNE doesn’t really have any real overlap with oil (which is a minor portion of power generation) this didn’t stop the stock from trading as if it was an Oklahoma fracker. Caveat emptor that investors in SUNE will need their full powers of discipline and strong stomachs to avoid the euphoria/despair caused by noise traders. Although they are slowly getting better, a sell-side which for the most part doesn’t do a good job of understanding or explaining SUNE doesn’t help matters. I will also repeat that those with a savvy trading bent can exploit this noise quite profitably.
I get the value in their PPA’s with solid counterparties and like their assets, but I wouldn’t rule out the chance of bankruptcy here. I’ve got no opinion on the value of SUNE equity or even debt, but this company will have $8.5B of net debt after Vivint closes and SUNE hasn’t generated positive cash flow from operations in years. Lots of debt and no cash flow to support it – tons of financial leverage. Even if you project future EBITDA of $1B, which it’s far from, it’s still very leveraged.
That said, being down 73% in one month is a crazy move even for this risky company.
thanks for the posts guys. i guess it could be as simple as a little shift in credit conditions and hedgies turn from “let’s ride off into the sunset” to “bankrupt for sure”. the debt is quite substantial but not all that greater than some of the other players. will be an interesting stock to watch either way.
I bought SUNE at 22. In all fairness, SUNE is a really complicated story that keeps getting more complex with each acquisition. I am completely baffled at this point though.
A lot of stocks are getting brutally thrown down an elevator shaft for even just barely missing EPS. I don’t know if that’s SUNE, and SUNE has gotten thrown down a highrise elevator. But lots of stocks are getting blown up left and right as people take money off the table of anything that is not working immediately. There are some good industrial companies trading at or near 2009 levels that don’t appear to be heading for insolvency. No one cares about that though, let’s all buy the dip on biotech scams.
I haven’t looked at the name but I’m assuming that their growth requires easy financing and it’s one of those things where enough people have to buy into the story to finance it for it to grow properly or it’s a bunch of promises with now way to get there.
I remember reading the writeup by aviclara who is very good and thinking that it was interesting but it was solar without any kind of proven financials so I wasn’t interested in trying to look further and have my then boss asking me why i’m trying to pitch something that is so convoluted with no EPS. I believe him and his fund got out around 25 the first time it hit there. Must’ve been miserable seeing it continue to rocket up after selling out but I guess they must be pretty happy in retrospect now.
I also think that some people were very unhappy with the vivint acquisition.
Anyone still watching this company? SUNE is trading like death righ now.
Yikes just looked at that chart and its brutal. Palantir, tell me you got out of it before you took a 90% haircut
Nope, pretty much got the haircut. Kept buying into the decline and watched the floor fall out. Ben Graham told me market is a weighing machine in the long term or something like that.
Is this a bankruptcy? I still have not looked at this stock but the market seems to think this is a donut?
The market definitely thinks this is a bankruptcy. Most of the debt on their B/S is nonrecourse financing backed up by their projects, in theory making it safe, but market has major doubts as oddly enough over the past month they started recognizing about $700M of debt as recourse, from nonrecourse earlier (wtf?). Basically the investor community has lost confidence in management, and just don’t believe a word they say, that’s the only explanation I have. I think mgmt is smart, but just moved way too aggressively for the market’s comfort.
I finally started looking at SUNE this week, it started to meet my “cheap as chips” criteria; P/B is 0.6X.
The problem; their financials look like shit. Really, these guys never make money, and now they are levered up, at a time when rates are rising, US equities are crazy expensive, and a recession could strike at any time. They already suck now, but a recession and market shock could knock them senseless…and even if that doesn’t happen borrowing costs increase. Current ratio as of Q3 was 1.1, so they aren’t going bankrupt tomorrow I guess, maybe they find someone to keep loaning them money, but it’s a big hole to dig themselves out of…
Too high probability of a value trap for my tastes. Could make 5X return, or could lose everything?
^Don’t take their GAAP financials too seriously. Basically the idea is that they build projects and keep them on their balance sheet, so they don’t recognize any revenue, but they recognize Opex. A lot of the debt is backed up by projects, but they consolidate that on their balance sheet. So naturally their financials look like shit. The idea is though that cash flow that the projects generate is going to start hitting the income statement perhaps next year.
At least that was the long case…we’ll see if management survives to execute this plan.
Up 38% today, I guess we missed out on the awesomeness?
Clawed almost back to 1X P/B.
Big pop today. I jumped in this name on hope management might be able to turn it around. Cost in the 3’s back in Nov. Kept going down, dollar cost averaged. using todays pop to lick my wounds and for the most part get out. Was a pretty small position but still ended up down ~20%. Still going to hold onto a couple shares