Why This Top-Rated Solar Analyst Downgraded SunEdison To Sell

• Shares of Sunedison Inc SUNE have declined 33.8 percent following the release of its 3Q15 results after-market on Monday, reaching a low of $4.775 on November 11.
• Axiom’s Gordon L. Johnson II has downgraded the rating on the company to Sell, with a price target of $2.
• Johnson believes that there could be 58 percent downside to the stock, and mentioned that investors no longer appear to have faith in management’s guidance.

Analyst Gordon Johnson stated that SunEdison reported its 3Q15 results with the revenues and GAAP EPS below the estimates but ahead of the consensus. However, this does not appear to be the reason for the steep decline in the shares since Nov 10.

Johnson believes that investors have lost faith in management’s forward guidance. The company had indicated on October 7 that it would sell projects of 50-70MW into the third party merchant market during 3Q15 at gross margins of 18-19 percent. However, SunEdison sold 41MW of project at a gross margin of 9.6 percent, on a GAAP basis, significantly missing its guidance.

Secondly, the company’s 43 percent owned yieldco, TerraForm Power Inc TERP has said a few weeks ago that it would “provide a “run-down” valuation for the company, and also assured investors it did not “have” to take drops from SUNE or invest in SUNE’s warehouses.”

TerraForm has not provided any analysis regarding a “rundown” company valuation, while committing additional capital to the Invenergy warehouse, via debt. Johnson believes that this is why TerraForm “pulled its C16 dividend-per-share guidance of $1.75.”

Johnson also mentioned that “unless SUNE can find new cheaper sources of funding and/or sell projects at the high-teens margins it claims… it seems likely fundamentals are set to worsen.”