Originally published on seekingalpha.com
- Considering the recent downfall in TerraForm Power stock levels we look at if it is worth investing in this security.
- We review various risk factors and our assessment on required yield based on the risk factors.
- Currently we view the valuation range of $17.50 to $20 subject to downward revision if Vivint Acquisition goes through.
Over the last year, we have been consistently negative on YieldCo valuations and did not see a reason to invest in any of the YieldCos in the market. We were of the opinion that the market was mispricing risk in the long term assets held by these YieldCos.
However, the yield bubble that we were in for much of the last year has caused many of the YieldCos to be priced at incredibly high valuations and consequently drove project developers like SunEdison (NYSE:SUNE) go on an unsustainable growth path.
One of the risks of this yield mispricing is that project developers counting on low yields tend to develop projects at unacceptably low margins. When yields rise, as they did recently, these developers find themselves cash strapped and with limited options on exiting from the projects under development. That is the quagmire that SunEdison finds itself in today.