What: Shares of SunEdison Inc (SUNE +0.00%) and its yieldco subsidiary TerraForm Power Inc (TERP +0.00%) dropped as much as 25% and 17%, respectively, today after they reported earnings.
So what: SunEdison reported $455 million in revenue, which easily topped the $393.7 million analysts expected. But on the bottom line, the company lost $263 million, or $0.93 per share, which was far worse than the $0.55 loss analysts expected.
TerraForm Power's revenue surged from $22.4 million a year ago to $130.0 million, and net income was $17.4 million. On an adjusted basis, earnings were $0.18 per share, which also fell below estimates of $0.20 in earnings.
Now what: The biggest concern for both companies is that net income and cash flow may not be high enough to justify massive growth plans and the debt required to build projects. SunEdison has nearly $11 billion in debt, and with losses piling up, it's tough to see how the company can dig out from under that load. Meanwhile, TerraForm Power is paying out more to shareholders than it's generating in operating cash or net income.
Financially, both companies are adding too much debt without enough financial return. I think SunEdison is the one in real danger today, and it's a stock I would be very cautious of. TerraForm Power has projects creating consistent cash flow, but I'm afraid that it's paying out dividends and adding debt now that could come back and haunt it if interest rates rise in the future.
