Needham analysts are weighing in on the US renewables company Sunedison Inc (NYSE:SUNE) and technology giant HP Inc (NYSE:HPQ), as shares of both companies fell sharply today in response to analyst downgrades and disappointing earnings.
Sunedison shares are tumbling 14.68% to $3.52, after UBS research analyst Julien Dumoulin Smith downgraded the stock from a Neutral to a Sell rating, while slashing the price target to $2.00 (from $3.00).
However, Needham analyst Edwin Mok took the other route today, reiterating a Buy rating on SUNE, with a price target of $10, which represents a potential upside of 182% from where the stock is currently trading.
Mok wrote, “SUNE recently made several strategic moves to streamline its organizational structure and address liquidity concerns. We see the management shake-up at the board level and the yieldcos, the drop down of higher yield projects to TerraForm Global, and SUNE’s pay down of the margin loan as positive signs that SUNE is responding to investor concerns regarding its liquidity and cash flow generation. The stock has rebounded 46% since last Friday’s close, which we believe was largely due to short covering. As SUNE continues to improve the operation structure, we see potential for shares to move higher given the depressed levels.”
The analyst continued, “Mgmt believes recent volatility of the share price is attributed to the margin loan it took out for the First Wind acquisition, which resulted in margin calls when TERP share price continues to fall. SUNE repaid $402MM in aggregate of the margin loan, leaving ~$5MM outstanding. We believe the move is prudent. Additionally, as part of the repayment of the margin loan, the market value trigger price of TERP stock was reduced and repayment provisions were waived. We believe this amendment addresses concerns over the falling TERP stock price, which could increase the risk for a margin call on SUNE.”
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Julien Dumoulin Smith and Edwin Mok have a total average return of 2.1% and 0.8% respectively. Smith has a success rate of 49% and is ranked #1,593 out of 3689 analysts, while Mok has a success rate of 50.3% and is ranked #1613.
Out of the 12 analysts polled by TipRanks in the last 3 months, 8 rate SunEdison stock a Buy, 2 rate the stock a Hold and 2 recommend a Sell. With a return potential of 278%, the stock’s consensus target price stands at $13.23.
In a research report released Wednesday, Needham analyst David Rold downgraded shares of HP from a Buy to a Hold rating, with a price target of $14.50, after the company delivered quarterly earnings and revenue that fell short of expectations. HP shares reacted to the news, dropping 14.34% to $12.54 on heavy volume, making it among the top losers today.
Rold commented, “Our upgrade on 11/2 was predicated on the notion that valuation (then having closed in the low/mid $12 range trading at a steep discount to peers) was compelling enough to outweigh even known headwinds facing both PC’s and Printing, especially given the attractiveness of a 3-4% dividend yield. However, as some of the valuation argument has played out, we believe further upside will require real improvement in the underlying business. The sharp turn of the Printing market (and delay in improvement that results) in just 2-3 months since last speaking with the Street warrants caution given the segment’s roughly 80% contribution to operating profit dollars. With the stock in the aftermarket under 10% from our previous PT of $14.50 and little justification for higher estimates, we downgrade to Hold from Buy.”
“Our overall opinion on HPE remains unchanged after last night’s earnings call, with a stock that already reflects an anticipated stabilization in some of its most troubled areas. There were positives and negatives worth noting from the call, however including growth in servers (large tier 1 hyperscale), upper single- digit growth in networking (excluding Aruba), and some slowing of the declines in services,” the analyst concluded.
Out of the 18 analysts polled by TipRanks in the last 3 months, 10 rate HP stock a Buy, while 8 rate the stock a Buy. With a return potential of nearly 84%, the stock’s consensus target price stands at $23.25.