TerraForm Power Inc (NASDAQ:TERP) has gotten the partial buyout offer it sought from Brookfield Asset management, who will buy 51% of the company and take over the sponsor role. And the yieldco is slowly catching up with its financial statements and bringing a little more certainty to investors. But this isn't the end of the line for TerraForm Power, it just gives the company some stability. It's now competing with yieldco stocks like NextEra Energy Partners (NYSE:NEP) and 8point3 Energy Partners (NASDAQ:CAFD) for your investment dollars and we know a lot more about where they stand financially and what kind of dividend we can expect in the future.
As investors ponder the future of TerraForm Power, it's important to compare the stock's value to that of publicly available rivals. And when you look at the numbers, it's hard to see why investors would want to bet on a further recovery for TerraForm Power.
The value in yieldcos
Looking at trailing twelve month results isn't perfect for this group of yieldcos because they've been adding assets throughout the year, particularly in the case of NextEra Energy and 8point3 Energy Partners. But it still shows how TerraForm Power is highly valued compared to other yieldcos. Remember that the numbers below likely underestimate the EBITDA of NextEra Energy Partners and 8point3 Energy Partners.
|Metric||TerraForm Power||NextEra Energy Partners||8point3 Energy Partners|
|EBITDA (ttm)||$475.9 million||$639 million||$76.2 million|
|Debt||$4.44 billion||$3.51 billion||$386.4 million|
|Cash||$677.1 million||$147 million||$14.3 million|
|Market Cap||$1.61 billion||$1.67 billion||$1.01 billion|
There are a few things you can take from this table. One is that TerraForm Power has a debt/EBITDA ratio of 9.3 compared to 5.5 and 5.1 for NextEar Energy Partners and 8point3 Energy Partners respectively. It's highly leveraged, which means it's higher risk for investors. And if that higher debt has to be refinanced at higher rates, it could put the company in a bad position.
You could also just look at NextEra Energy Partners' market cap of $1.67 billion, its lower debt level, and its higher EBITDA and wonder why investors wouldn't rather own that stock over TerraForm Power?
The same could be said for dividend yields. 8point3 Energy Partners pays a 7.7% dividend yield and NextEra Energy Partners pays a 4.5% yield. TerraForm Power has suspended its dividend and estimated cash available for distribution was down 43% in Q3 2016, the most recent reported quarter, as interest expenses have gone up dramatically. Brookfield's ownership may change the debt structure long-term, but short-term it's difficult to see how cash available for distribution will jump, despite the ownership change.
Why take a risk when a better bet is staring you in the face?
There was a lot of speculation about a potential buyout of TerraForm Power, which has helped drive shares higher over the past year, but the yieldco will still be a publicly traded company and is trading at a higher price than the cash buyout offer. With that in mind, at the end of the day investors have to consider what kind of fundamental value there is in TerraForm Power shares versus other options.
Given all of the strong yieldco options out there, it's hard to see how TerraForm Power presents much of a value for shareholders or a potential buyer. And with that in mind I think the stock faces a hefty challenge moving higher in the future.