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SunEdison's (SUNE) Shares Hit a 52-Week Low: Here's Why

Zacks Equity Research

Shares of SunEdison Inc. SUNE plunged as much as 29.3% in yesterday’s intraday trading session to a new 52-week low of $2.36 after an analyst from Axiom Capital Management fanned fears about the company's costly debt restructuring.

However, later in the day, the stock recovered somewhat before closing at $3.02, registering a fall of approximately 10% from the previous day’s closing price of $3.34.

At Benzinga’s PreMarket Prep morning podcast Gordon Johnson, an analyst at Axiom, said that “SunEdison amassed a massive amount of debt”. He also asserted that “SunEdison was very aggressive in the way they were bidding for projects. If they’re unable to sell those projects, I don’t know how much longer the equity can last.”

The stock has been on a downtrend since the second half of 2015 as investors have become increasingly cautious over the company’s ability to finance its projects. Last year, the company made a string of buyouts to expand its global operations and become the world’s leading renewable energy developer.

These acquisitions, once believed to be strategic, are now burning a hole in SunEdison’s pocket. The acquisitions have taken a toll on its balance sheet with total outstanding debt (including current portion) nearly doubling to $11.7 billion at the end of third-quarter 2015 from $6.3 billion a year ago.

To lower its debt burden, the renewable energy developer last week announced some debt restructuring moves. Though the move according to Bloomberg will increase SunEdison’s net liquidity position by $555 million, it will incur a very high cost.

Citing Sven Eenmaa, an analyst at Stifel Financial Corp., Bloomberg revealed that the new transaction will increase SunEdison’s annual interest expenses by about $40 million. The financial data provider also stated that this will dilute existing shareholders value by approximately 18%. (Read: SunEdison Dives 39% on Complex Debt Restructuring Moves)

We believe that with the recent sell-off, it will become difficult for SunEdison to raise more funds for project financing. Therefore, as the going gets tough for the company, 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 Autodesk Inc. ADSK, Avid Technology Inc. AVID and Citrix Systems Inc. CTXS. All these stocks sport a Zacks Rank #1 (Strong Buy).

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