5 Upside Risks To A Sunedison Short

After a 5.6 percent decline on Monday and a 25.8 percent crash on Tuesday, shares of Sunedison Inc SUNE are down another 8.0 percent in Wednesday trading following a report by Debtwire that the company is in debtor-in-possession negotiations with creditors.

The market has taken the report as a sign that bankruptcy could be right around the corner for SunEdison, and Axiom analyst Gordon Johnson is squarely in the corner of the bears.

Related Link: Report Says Sunedison In Talks With Second Lien Holders, Shares Crash

However, despite his Sell rating and a $0.22 price target for SunEdison, Johnson mentions short sellers should be cautious with the volatile stock. In a new report, Johnson mentions five possible bullish catalysts that could blow up a SunEdison short:

1. If a “white knight” buyer steps in to buy out SunEdison, the stock could explode to the upside overnight.

2. If SunEdison begins selling solar projects at 9-10 percent returns, market (and creditor) concerns over the company’s liquidity positions could diminish.

3. If an activist investor steps up and takes a large stake in TerraForm Power Inc TERP, equity markets would likely no longer be closed.

4. If negative market sentiment toward YieldCo equity proves to be temporary and shifts back to positive at some point, it would take a lot of pressure off of SunEdison.

5. If traders begin to view SunEdison as the long side of a pair trade that involves shorting any of a number of highly-levered Chinese vendors, the stock could gain some positive shot-term momentum.

Disclosure: the author holds no position in the stocks mentioned.