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SunEdison to Install Solar Parking Canopies at 25 Schools

Zacks Equity Research

SunEdison Inc. SUNE recently won contracts for installing high-performance solar parking canopies at the campuses of 25 elementary, middle, and high schools in California. The schools are located across the 5 Californian districts – Dixon, Downey, Duarte, Livermore, and Newman Crows Landing.

The districts entered into a 20-year power purchase agreement under which SunEdison will install solar system as parking canopies at the schools’ parking lot. The total installed capacity will be over 7.4 megawatts (MW) and SunEdison expects to complete the project by the end of this year.

The installed capacity will lower carbon dioxide emission by more than 136 million pounds over the agreement period, which, according to SunEdison, is equivalent to “carbon sequestered by more than 51,000 acres of U.S. forest in a year”.

The facilities will not only provide clean energy but also save about $30 million in tax money over the next two decades.

The demand for cheap and clean energy will increase manifold over the next few years as a result of environmental concerns and depleting natural resources. Being the world’s largest renewable energy developer, SunEdison is well positioned to gain from this.

However, we are concerned about how SunEdison plans to finance the project considering the highly leveraged balance sheet. The company incurred a tremendous debt burden because of the string of buyouts, including First Wind and Solar Grid Storage, made over the past one year.

The acquisitions, once believed to be strategic, are now burning a hole in SunEdison’s pocket. The total outstanding debt (including current portion) nearly doubled to $11.7 billion at the end of third-quarter 2015 from $6.3 billion a year ago.

Although SunEdison has taken a series of initiatives, such as lowering its offer price for the Vivint Solar buyout and quitting the development projects in Brazil, to improve the liquidity position, we are yet to see any material impact on the balance sheet.

Moreover, the company recently announced debt restructuring initiatives. However, the strategy is reportedly very complex and expensive. (Read: SunEdison Dives 39% on Complex Debt Restructuring Moves)

Further, though a deal win is a positive, the value is too small to have any material impact on the company’s cash flow. Therefore, we would advise investors to stay away from this Zacks Rank #3 (Hold) stock for now.

Meanwhile, investors may consider some better-ranked stocks in the broader technology sector such as Advanced Micro Devices Inc. AMD, CEVA Inc. CEVA and MRV Communications, Inc. MRVC. All these stocks carry a Zacks Rank #2 (Buy).

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