Sunedison Inc (OTCMKTS: SUNE)
Sunedison has had an incredibly rough time in the market as of late, and for good reason. Unfortunately, the company amassed a massive amount of debt throughout the growth process, ultimately leading to the company filing for bankruptcy, a process it is going through right now. However, in some cases, corporations make it through bankruptcy to continue doing business in the future. In this particular case, I believe that this is exactly what’s going to happen. As such, I have decided to set a one year price target on SUNE at $0.40. Today, we’ll talk about the company’s business model, the bankruptcy, and why we have set a price target at $0.40 per share.
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The Aggressive Business Model At SUNE
Since the beginning, Sunedison set out to be the leader in solar power. To do so, the company has built several solar power plants. The idea behind these power plants was relatively simple; build the plant and contract with utility companies for the sale of the power generated at a wholesale rate. Under this business model, SUNE entered into several long-term contracts that would generate revenue for the company on a regular basis. However, there was one big problem with this concept; in order for SUNE to build the power plants, it had to shell out massive amounts of money. As a result, the company took out loans to cover the cost of constructing the massive solar power plants. This, unfortunately, led to billions of dollars in debt.
Nonetheless, Sunedison wasn’t done there. The company realized that there were quite a few competitors in the solar space which it could acquire in order to make its company the largest in the industry. So, the company embarked on an adventure to start acquiring high-dollar solar companies. In doing so, SUNE had to take out even more debt. After all, the company didn’t have the billions of dollars it needed for the acquisitions at hand.
SUNE Files For Bankruptcy
After years of building solar power plants and acquiring solar companies, Sunedison built up quite a bit of debt. In fact, the latest figure came in around $11 billion. Unfortunately for SUNE, that amount of debt proved to be too much. Unfortunately, the company got to a point where it simply couldn’t afford to pay its bills. As a result, it decided to file bankruptcy.
What We Can Expect To See Moving Forward
Since the debt came to light, Sunedison’s stock fell from well over $30 per share to today’s value of $0.18 per share. Unfortunately, the concept of bankruptcy is one that scares investors, and for good reason. About 60% of companies that file for bankruptcy don’t end up paying their shareholders back, and investors are in it for gains, not losses. However, in this particular case, I believe that SUNE is going to be one of the 40% that does pay its investors back. The reality is that while the company built up more than $11 billion in debt, it has also built up massive amounts of assets. As a matter of fact, if you take the current debt load and the assets carried, SUNE has a value of about $0.40 per share. While, we are likely to see quite a bit of rollercoaster-like movement through the bankruptcy process, I do believe that Sunedison will be able to make it over this hurdle. As such, I have decided to set a price target on the stock at what I believe its current value to investors is, $0.40. To view all CNA Finance price targets, click here!
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What Do You Think?
Where do you think SUNE is headed moving forward and why? Let us know your opinion in the comments below!
[Image Courtesy of Wikipedia]