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SunEdison Gains on Dominion JV for Four Brothers Project

Zacks Equity Research
Updated

Shares of SunEdison Inc. SUNE gained more than 5% yesterday after the company announced a joint venture on Tuesday evening with Dominion Resources Inc. D, the nation's largest producers and transporters of energy, for the Four Brothers solar project in Utah.

The Four Brothers project is a 420 megawatt (MW) DC (or 320 MW AC) facility, developed by SunEdison. The fully funded project is currently under construction with expected in-service in mid-2016. This venture has secured a 20-year power purchase agreement with Berkshire Hathaway Energy’s subsidiary – PacifiCorp (A-/A3). SunEdison’s 50% stake in this project is on the Call Right Projects List of its YieldCo, TerraForm Power Inc. TERP.

Including funding for construction, Dominion will invest about $500 million to acquire 50% cash equity and 99% tax equity in Four Brothers, per the JV. SunEdison will contribute the remaining $150 million which has already been financed through a four-year term loan from Deutsche Bank. The project is expected to generate about $40 million in unlevered cash available for distribution for both the companies.

The solar project will produce enough electricity to power 90,000 homes. Moreover, the project will create 500 constructions jobs and generate $66 million in direct property and income taxes over the next two decades.

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We believe that SunEdison will gain the most from the JV. The company intends to add more long-term cash flows to its business, but lacks sufficient capital to fund the projects.

As of Jun 30, 2015, the company’s long-term debt (excluding current portion) was $9.2 billion, while it has negative cash flow from operation of $621 million in the first half of 2015. In our opinion, a highly leveraged balance sheet may limit its financial flexibility and weaken earnings growth prospects.

We believe that the company should look for such ownership structures that provide ample funds to finance its energy projects while reducing risks for investors.

Currently, SunEdison carries a Zacks Rank #4 (Sell). A better-ranked stock in the technology sector is Mellanox Technologies, Ltd. MLNX sporting a Zacks Rank #1 (Strong Buy).

 

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DOMINION RES VA (D): Free Stock Analysis Report
 
MELLANOX TECH (MLNX): Free Stock Analysis Report
 
SUNEDISON INC (SUNE): Free Stock Analysis Report
 
TERRAFORM POWER (TERP): Free Stock Analysis Report
 
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