Sunedison Inc (NYSE:SUNE) is a company that has fallen on incredibly hard times. There’s no denying that. The company is facing lawsuits, upset investors, and high amounts of debt. However, I believe that by the end of the year, the bears will be upset that they weren’t buying long positions. Today, we’ll talk about three reasons that I believe SUNE is likely to climb.
Debt Isn’t As Bad As It Seems
Sunedison has a massive amount of debt, and when I say massive, I mean it. In fact, the company’s debts are nearing $1 billion, Ouch! Now, that may seem absolutely horrible, and when the bears talk about it, they outline it in such a way that there’s no coming back from it. This is pretty much where they leave you. However, let me take it a step further. While SUNE does have a massive amount of debt, they just so happen to be one of the world’s largest solar power companies. So naturally, they also have a massive amount of assets. In fact, the company has more than $5 billion in assets. With that said, SUNE debts only account for less than 20% of its total assets. In fact, if the company were to sell all of its assets today, it would be able to pay off its debt with a remaining $4.5 billion left to split between shareholders. That’s about $14 per share each. So, is Sunedison’s debt really that bad? In my opinion, the answer is no.
Continues To Make Huge Power Purchase Deals
One of the bread and butter aspects to SUNE is power purchase agreements. Under these agreements, the company builds solar power plants and agrees to sell the energy generated to a utility company over a long term period of time. In fact, it’s these agreements that led to the massive amounts of debt the company is dealing with. However, that debt will eventually be paid off and then some as a result of the agreements other companies have signed to purchase the energy generated. To give you an idea of how these deals work, lets look at the most recent one. Sunedison announced just days ago that it had signed two 20-year power purchase agreements with a utility company known as Southern California Edison. The agreement covers 2.7 megawatts DC of solar power. In a statement, Sam Youneszadeh, SUNE regional general manager of the Western U.S. solar business had the following to say about the deal…
“We know that air quality is a big concern for residents in the area, but so is getting reliable electricity to a growing, economically important region. Sunedison can help… Solar is a great way for utilities to boost grid reliability without emitting greenhouse gases. Solar is cost effective, quick-to-build, and can easily scale. It’s great to see Southern California Edison looking after the people it serves.”
As these power purchase agreements continue to pay dividends, SUNE and its investors will continue to reap the rewards of the agreements.
Changing Tides In The Energy Sector As A Whole
As outlined in Mr. Youneszadeh pointed out, California residents are concerned about clean air. However, it’s not just California that has this concern, it’s the entire world. Late last year, we received news that Paris had reached a landmark climate change agreement, directed at combating global warming. Science has proven that greenhouse gas emissions are slowly causing our planet to heat up. As a result 195 countries have agreed to work to reduce greenhouse gas emissions. The only way to do this is to reduce reliance on the burning of fossil fuels. This means that as time passes, demand for solar and other renewable energy resources will climb. It’s likely that SUNE and several other companies will benefit from such a trend.
The bottom line is that SUNE is a great company, and it’s well-positioned to take advantage of the changing tides in the energy sector. While debt is a concern, the company has the assets to back up the debt. With more and more power purchase agreements coming online, and a change in how we see clean energy, it only makes sense that in the long run SUNE will be headed up. So, buying while it’s low will likely give you incredible gains at a great discount!
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