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3 Reasons SunEdison Stock Could Rise

By Justin Loiseau – Mar 4, 2016 at 9:28AM

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After a stormy year for shareholders, it's possible the dark clouds around SunEdison could pass in 2016.

Image source: SunEdison, .

In the past year, SunEdison (NYSE: SUNE) stock has plummeted over 90% -- and 50% in the last month, alone. With a meager $475 million market cap left to its name, investors are wondering whether the company is setting itself up for a record rebound, or whether it should be left for scrap. The scenario looked even more dire on Tuesday, when it announced it would delay earnings while undergoing an audit investigation.

But here at The Motley Fool, we make a business of exploring all possible outcomes, however unlikely they may seem to be. So for all the skeptics out there, here are three reasons SunEdison stock could still rise again.

1. Tying the knot with Vivint Solar
In its latest business update, SunEdison's Vivint Solar (VSLR) acquisition was front and center. SunEdison has received major flak for stretching its finances thin to acquire company after company in its quest to become the biggest renewable energy player around, and shareholders have paid dearly for this strategy.

Luckily, the company has found some wiggle room with its latest and greatest acquisition -- it backpedaled on its Vivint Solar terms and has since secured a $2--per-share cash reduction in exchange for a $0.75 increase per share in stock considerations.

This new negotiation with Blackstone Group, which owns around three-quarters of outstanding Vivint shares, makes the soon-to-be-acquired company's $1.9 billion price tag look more reasonable. The deal is expected to close in the first quarter of 2016, and if all goes as planned, Vivint Solar and its assets will be spread around SunEdison and its yieldcos as a last hurrah to SunEdison's solar shopping spree. Once Vivint is firmly embedded in SunEdison's business, investors will breathe easier and may even be willing to admit that the expected 9.5% 10-year average levered cash-on-cash yield may even be a good thing for SunEdison.

2. SunEdison grows a cash cow
Currently, SunEdison's trailing-12-month operating cash flow (cash on hand after considering cash received from everyday operations) sits at negative $1.9 billion. When considering its TTM levered free cash flow, SunEdison is stuck with a significantly worse negative $3.3 billion after paying debt obligations. Compare those numbers (and others) to a relatively similar company like First Solar (FSLR 3.59%), and SunEdison's debt doesn't exactly excite investors worried about overextension:

 Metric

SunEdison

First Solar

Revenue

$2.5 billion

$3.7 billion

Operating cash flow (TTM)

($1.9 billion)

$0.5 billion

Levered free cash flow (TTM)

($3.3 billion)

$1.1 billion

Debt

$11.7 billion

$0.3 billion

Debt-to-equity ratio (most recent quarter)

256

5.7

Data source: Yahoo! Finance. TTM = trailing 12 months.

SunEdison has seen the light and is working to make its cash flow positive and steady. The chart below shows how the company will move cash over the next year (click here and advance to slide 14 for a full-resolution version).

Image source: SunEdison. 

If the company is successful in getting its books in order, investors may just give SunEdison stock another chance.

3. Investors look to longer-term horizons
Solar stocks, in general, have hit a major rut. Over the past year, First Solar has been one of the only solar companies whose stock has offered any gains to shareholders.

FSLR Chart

FSLR data by YCharts.

There are many reasons that solar stock prices have dropped. Excessive expectations, low oil prices, unsteady finances, and regulatory hiccups have all caused investors to reconsider solar's risk-return model. The massive general stock market sell-off hasn't exactly helped things, either.

Currently, investors are scared. They're looking for safe havens, and few solar stocks fit that description. If solar companies prove that they can pull themselves out of a burst bubble over the next year, investors may swallow their short-term losses and set their sights on solar's long-term potential. If that's occurs, SunEdison stock may take the spotlight as a value grab in an expanding solar market.

Buy SunEdison?
There are many more reasons that this stock could rise -- but there are also reasons that it could fall even further. Ultimately, investors looking to do anything more than make a risk-filled attempt to time SunEdison's erratic market movements should hold off for now. This solar stock is not for the faint-hearted, and investors should be sure they understand the risks before they add its shares to their portfolio.

Justin Loiseau has no position in any stocks mentioned, but he does enjoy sunlight and free cash flow. The Motley Fool has no position in any of the stocks mentioned. 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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Stocks Mentioned

SunEdison, Inc. Stock Quote
SunEdison, Inc.
SUNEQ
First Solar Stock Quote
First Solar
FSLR
$167.62 (3.59%) $5.81
Vivint Solar Stock Quote
Vivint Solar
VSLR

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