"JPMorgan lowered its rating on imploding solar developer SunEdison (SUNE) to Neutral on Friday, but pointed out the double-digit yields at its two publicly-traded “yieldco” subsidiaries and said both were unlikely to default on their commitments.
Analyst Paul Coster kept TerraForm Power (TERP), at an overweight rating. He kept SUNE’s other yieldco, TerraForm Global (GLBL), at Neutral, but had some positive comments.
Coster’s diverging outlooks were reflected in share prices on Friday. SUNE fell another 4 cents to close at $2.82 while TERP climbed 81 cents, or nearly 10%, to close at $9.20 and GLBL climbed 51 cents, or 11%, to $5.27.
Coster headlined his note on SUNE, “Ending the Agony: Downgrading to Neutral; Price Target to $5.50.” He suggested the company can avoid bankruptcy, but didn’t sound too confident, writing:
We think the stock is somewhat undervalued, the firm’s development and operational assets are high quality, but the situation is complicated, fluid and risky, so we move to the sidelines, deeply disappointed that we did not do so ahead of the “death-spiral.”
But as for TERP, he sums up:
We believe TERP is largely protected from cross-default risk at SUNE, and that the recent sell-off is over-done. We reduce our DCF [distributable cash flow]-based price target to $19.00 based on a revised DPS [dividend per share] growth-outlook and balance sheet commitments, but we remain Overweight and think the current yield of 17% is attractive.
Of GLBL, he writes in a similar fashion:
We believe GLBL is largely protected from cross-default risk at SUNE, and that the recent sell-off may be over-done. We reduce our DCF-based price target to $7.50 based on a revised DPS growth-outlook and balance sheet commitments, but we remain Neutral and think the current yield of 23% looks attractive."
Any company that is yielding 17% or 23% is extremely risky in today's environment when 10 year treasury yields are approximately 2.26%.
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