Why SunEdison Inc. Shares Could Soar 80%

Does this analyst make a good case? Or is it just more noise from Wall Street?

Jun 16, 2014 at 10:54AM

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of SunEdison Inc (NYSE:SUNE) gained 3% in premarket trading Monday after Deutsche Bank upgraded the silicon wafer specialist from hold to buy.

So what: Along with the upgrade, analyst Vishal Shah boosted his price target to $35 (from $13), representing about 80% worth of upside to Friday's close. So while contrarian traders might be turned off by SunEdison's big price jump over the past year, Shah's call could reflect a sense on Wall Street that sector tailwinds give the stock plenty of room to run.

Now what: According to Deutsche, SunEdison's risk/reward trade-off is rather attractive at this point. "We are becoming increasingly constructive on the solar sector as we expect further tightening of the solar supply/demand balance and expect increased investor interest driving valuation multiple expansion," said Shah. "We expect the emergence of 5-6 publicly traded YieldCos over the next 12-18 months to act as a robust growth enabler as we expect a significant amount of low-cost capital to chase projects, driving improved project economics and greater amount of new project development." Of course, when you couple Sunedison's still-significant debt load with its red-hot and volatile stock price, I'd hold out for a much wider margin of safety before betting on it. 

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Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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