Despite Sunedison Guidance Slash, Solar Industry Still Looks Bright

Sunedison held a business update call on Wednesday during which the company reduced its 2016 guidance by 20 percent. However, Sunedison’s share price spiked as much as 16 percent following the call, as the market identified several positive takeaways.

One of the listeners that liked what he heard on the call was ROTH Capital Partners analyst Philip Shen. In a follow-up report, Shen listed the positives and negatives from the call for Sunedison and explained why ROTH is maintaining its bullish outlook for solar stocks.

Related Link: Solar ETF And Stocks Getting Hammered: Here's Why

Positives

In his report, Shen identified the following four positive takeaways from Sunedison’s call:

• 1. The company has no plans to drop assets down to TerraForm Power Inc TERP or TerraForm Global Inc GLBL in 2016, eliminating the need for potential equity raises.
• 2. The company is transitioning more toward third-party sales than expected.
• 3. Asset prices have remained solid.
• 4. The company’s $5 billion of warehouse facilities indicate that there is no need for near-term capital.

Negatives

One of the biggest negatives that Shen heard on the call was the unclear and complex accounting practices by Sunedison. Given the complexity of the accounting treatment of warehoused projects, for example, it is very difficult for analysts to project the true earnings power of the company.

Shen added that the company will also likely not record meaningful margins on warehoused projects in the coming quarters.

Outlook

Overall, ROTH believes that the positives outweigh the negatives for the yieldco-exposed stocks that the firm covers. Although Sunedison is not under coverage, ROTH has Buy ratings on 8Point3 Energy Partners LP CAFD, Canadian Solar Inc. CSIQ and Hannon Armstrong Sustnbl Infrstr Cap Inc HASI.

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