Merrill Lynch analysts remain on the sidelines for solar firm Sunedison Inc (NYSE:SUNE) and oil giant Chevron Corporation (NYSE:CVX) following a termination of a merger and announced cost cutting measures, respectively. One analyst believes the merger termination will benefit SUNE in the short run, though cites long-term uncertainty. Another analyst believes Chevron made the right move with its decision to cut spending, however points to slower growth relative to peers.
Analyst Krish Sankar of Merrill Lynch recently weighed in on Sunedison following the termination of SunEdison’s merger with Vivint Solar, SUNE’s yieldco, Terraform Power, entered a deal in July to acquire Vivint’s rooftop solar panel business for $2.2 billion. The deal garnered criticism from investors, notably hedge fund Appaloosa Management, due to beliefs that Vivint’s assets on Terraform’s balance sheet was not in the best interest of Sune’s shareholders or business model. Earlier this week, Vivint announced they are terminating the deal with Sunedison due to difficulties in obtaining funds for the acquisition.
The analyst notes an incrementally positive effect on both SUNE and TERP shares. In Vivint’s announcement on March 7th, the company stated that termination of the agreement was due to a willful breach by SunEdison and will now evaluate legal remedies for this event. Sankar states, “We view the news as an incremental positive for SUNE and TERP shares in the short term,” and proceeds to explain his long term uncertainty on both companies. He cites, “However, neither might be fully out of the woods depending on the legal and financial recourse sought by Vivint..”. In addition, Sankar adds that SunEdison is experiencing financial challenges in terms of liquidity, reporting and other executions risks, altogether resulting in maintaining his Neutral rating on the company with a $2.50 price target.
Krish Sankar has a 40% success rate recommending stocks with an average loss of (7.7%) per recommendation.
According to 15 analysts polled by TipRanks, 4 analysts gave a Buy rating, 3 gave a Sell rating, and 8 remain neutral. The average 12-month price target for the stock is $4.80, marking a 150% upside from where shares last closed.
Analyst Doug Leggate of Merrill Lynch weighed in on Chevron Corporation’s recent announcement to cut spending in an effort to maximize returns in the midst of the global crude price crisis. The company’s investment cuts follow suit of peers Exxon Mobil and ConocoPhillips, who face similar woes. More specifically, the company abandoned a planned production of 2.9-3.0 mmboepd in 2017 with a capex of $20-$24bn, to a slow approach towards 3.1 mmboepd by the end of the decade with reduced planned capex of $17bn-$22bn. Chevron’s goal is to cut capex while retaining its dividend distribution.
The analyst’s case is based on the assumption that oil price recovery starts in 1H16 and explains why he believes the company’s strategy recap is a good one. He states, “Chevron’s relative ‘torque’ swings the portfolio from cash burn to free cash flow at a faster rate than peers given a production mix still levered to oil – but with the incremental headwinds that is greater exposure to spot LNG markets as several major projects complete.” Although the company moderates its medium term growth, which comes primarily from the company’s offshore production, onshore businesses in Chevron’s portfolio are aimed at offsetting reduced medium term growth. Leggate places the caveat that the Chevron’s shares should have slower value growth than its peers, and are dependent upon a declining capital expenditure and increased production. Therefore, Leggate reiterates his Neutral rating on the stock and raises his price target to $105 (from $100).
37% of Doug Leggate’s recommendations are profitable, and has an average loss of (8.3%) per recommendation.
Out of 9 analysts polled by TipRanks, 7 analysts gave CVX a Buy rating, while 2 remain on the sidelines. The average 12-month price target for the stock is $100.29, marking an 8.05% upside from current levels.