Traders who track SunEdison's (SUNE) chart may need a Dramamine after the stock's recent gyrations, but investors may want to reach for the Valium.
As of midday trading Wednesday, shares of SunEdison were down more than 15% on news that UBS lowered its rating on the Missouri-based renewable energy company to sell and set a price target of $2. This movement comes after the stock soared 27% to $4.16 on Tuesday.
Along with the downgrade of SunEdison, UBS also downgraded TerraForm Power (TERP), one of the yieldcos which manages SunEdison projects, to sell citing risks posed by SunEdison's liabilities.
SunEdison's seesawing stock price can be partially attributed to the company releasing several 8-Ks earlier this week. The filings ran the gamut of listing management changes, the sale of projects in India to another of its yieldcos, TerraForm Global (GLBL) and the repayment of debt to Deutsche Bank. While the stock soared on the seemingly good news on Tuesday, investors woke up with a hangover on Wednesday morning and were less sure of SunEdison's turnaround story. Shares of SunEdison are down 82% year-to-date.
"We've referred to the [Deutsche Bank] margin loan that they took out as problem paper number one," said Michael Morosi of Avondale Partners. "It was a necessary step, it's probably not sufficient in and of itself, but it's an important step in the right direction."
Even with taking necessary steps, the company still has a lot of work to do to get its financial affairs in order. Not only has the company been hurt by liquidity issues, it has also been criticized for a lack of transparency.
"Ultimately they're going to be well served if they do a recapitalization of the balance sheet," Morosi said, citing the difficulty of matching the company's debt to its projects. "It's possible that they can hobble enough liquidity together to keep the lights on in the coming quarters, but in our opinion, that will be suboptimal because it won't address one of the primary concerns investors have had and that is the lack of visibility and the lack of transparency."
Believers in SunEdison's turnaround story will have to wait until after the new year, if they are to be rewarded at all. Some of the recent sales may be due in part to investors harvesting losses for the 2015 tax year, according to Jon Najarian of optionmonster.com
"I think much of what we've seen lately from SUNE is a stock under pressure primarily by tax loss sellers and hedge fund liquidations," Najarian told Real Money. "When it broke the $5 mark in mid-November, that forced many hands that would have held, but had to sell based on the barrier being breached."