SunEdison (SUNE) Selling 'Mostly Technical in Nature' - Deutsche Bank

Deutsche Bank maintained a Buy rating on SunEdison (NYSE: SUNE) with a price target of $28. Analyst Vishal Shah continued to defend the stock, saying panic selling creates a great buying opportunity. Shah also said the selloff was technical in nature and tied to short selling activity.

"SUNE shares sold off in heavy volume intraday without any additional news hitting the tape. We fielded a number of investor questions on the impact of Chinese currency devaluation on SUNE and yieldcos. While investors were concerned about the potential impact of FX moves on dividends, we note that the dividends are hedged against FX and sell off was mostly driven by heavy short selling activity," said Shah.

Shah provided some thoughts on ways management can stop the selloff.

"First, some of the senior mgmt team members can personally buyback some stock. Second, it appears that more aggressive growth plans are a problem for the stock. Investors are not looking for SUNE to develop 4.2-4.5GW in 2016. The shares would react positively if mgmt slashed devco guidance to 3GW. Third, mgmt can sell some backlog and generate cash. In the recent filings, Dominion reported that it purchased a 50% stake in SUNE project for a substantial portion (~75-80% of project capex). SUNE on the other hand only contributes 20-25% of capex (through already secured project financing) for 50% of the cash flow. The company also has the call right for 50% of the cash flow after 5 years. We expect SUNE to announce transactions similar to Dominion in order to alleviate liquidity concerns. Fourth, mgmt can get capital infusion from a large strategic investor that has interest in infrastructure projects. Several large PE firms who have been purchasing these projects would be natural strategic investors in SUNE. Fifth, mgmt can restructure the IDR structure at TERP so that the drop downs in 2016 are more accretive. Sixth, mgmt could arrange additional warehouse financing to demonstrate that it can develop additional projects in 2016 without a strain on balance sheet. Finally, even though it looks like a long shot, SUNE could reach an agreement to walk away from the VSLR transaction. While it is difficult to assess the timing of any of these catalysts, a number of these actions are clearly in the hands of mgmt."

For an analyst ratings summary and ratings history on SunEdison click here. For more ratings news on SunEdison click here.

Shares of SunEdison closed at $13.35 yesterday.

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