SunEdison Inc (NYSE:SUNE) has already had a rough week, and it’s only Tuesday. The solar energy firm received a stern warning and a stock downgrade from Bank of America Merrill Lynch. This comes one week before it reports its fourth quarter earnings.
SunEdison Gets Bad News From the Bank
Krish Sankar of Bank of America Merrill Lynch released an analysis on the stock. According to his research, Sankar decided to downgrade the rating of SunEdison from “Buy” to “Neutral.” He also lowered the price target from $10.00 to $2.50.
The analysis notes that SunEdison does have a sufficient amount of cash on its balance sheet to operate. However, due to a number of financial and legal matters, the firm’s stock could still trade in a volatile manner.
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SunEdison faces legal issues by Latin America Power (LAP) investors, claiming SunEdison exited from an acquisition deal. LAP investors want arbitration claims of $150 million for its failure to complete the deal. A New York judge barred SunEdison on Friday from transferring assets “without fair consideration or in the ordinary course of business.”
This sent the stock tanking by as much as 30 percent.
The solar energy firm has also been sued by Appaloosa Management LP. The hedge fund is trying to stop SunEdison from trying to offload Vivint Solar Inc’s (NYSE:VSLR) asset portfolio to its yieldco vehicle, TerraForm Power Inc (NASDAQ:TERP). Appaloosa, which owns about 10 percent of the yieldco, says that the deal is unfair to TerraForm.
“Management’s ability to execute on OpEx reductions to maintain margins, recycle assets through its warehouse facilities and sell projects to third parties, as well as the outcome in the Vivint Solar lawsuit [could pose risks],” said Sankar. “We also note that SunEdison is basically a forced-seller into the third party market at this point, which could make it difficult to realize full value for its assets despite our view of that market’s size and robustness.”
Year-to-date, its shares have fallen 67 percent.
SunEdison’s Multi-Day Rollercoaster
The news wasn’t all bad for SunEdison on Tuesday.
By mid-afternoon trading, the stock was up as high as 18 percent. Shares were soaring because a Delaware court heard a case about the firm’s proposal to buy Vivint Solar.
Ahead of SunEdison’s plunge, an array of hedge funds suddenly became excited about the firm. Visium bought 1.3 million shares, Sand Grove Capital Management acquired 272,000 shares and Adage Capital Partner put on an option of 9.2 million shares. If they planned to catch the bottom then they failed.
Many investors are worried after there have been reports that SunEdison missed a cash dividend payment announcement last week. Axiom Capital’s Gordon Johnson, who has heavily criticized the stock, said a statement of a $8.297 million cash dividend should have happened.
“Along these lines, with this announcement lacking, some are assuming SUNE may have cash issues much more pronounced than already feared,” he wrote, adding that a statement could still come at anytime.
The books as of last year’s third quarter suggest SunEdison had $2.393 billion in cash. This means if the firm missed an $8 million dividend then something could be wrong.
The firm’s shares have dropped 92 percent in the last 12 months.