Why SunEdison Inc. Shares Popped Today

Is SunEdison's jump meaningful or just another movement?

Jun 16, 2014 at 4:59PM

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 (NYSE:SUNE) jumped more than 11% Monday following an analyst upgrade.

So what: Citing valuation upside potential from the successful execution of  the renewable-energy specialist's yieldco strategy, Deutsche Bank analyst Vishal Shah upgraded shares of SunEdison from hold to buy. Shah simultaneously increased his per-share price target for SunEdison from $13 to $35, representing a more than 60% premium for investors even after today's pop. Shah also expects "the emergence of 5-6 publicly traded yieldcos over the next 12-18 months to act as a robust growth enabler" for the solar sector as a whole.

Now what: SunEdison shares rose just over two weeks ago after the company announced the proposed initial public offering of its indirect yieldco subsidiary, TerraForm Power. As a yieldco, TerraForm generates revenue from long-term power purchase agreements with utility companies, and gives businesses like SunEdison a place to sell their solar installations.

SunEdison isn't profitable on a trailing 12-month basis, and shares don't exactly look cheap trading around 166 times next year's expected earnings. But that's also not uncommon for a company on the cusp of achieving sustained profitability. If SunEdison continues moving in the right direction, as expected, I see no reason the stock can't also continue rewarding patient long-term investors.

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Steve Symington 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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