What’s Ahead For SunEdison This Earnings Season?

SunEdison, Inc. (SUNE – Analyst Report) is expected to report fourth-quarter 2015 results on Feb 17. Notably, the company posted wider-than-expected loss in the last quarter.

Let us see how things are shaping up for this announcement.

Factors to Consider

In an effort to strengthen its position as a renewable energy developer, SunEdison has been on an acquisition spree over the past two years. These moves, once believed to be strategic, are now being considered ineffective as the company does not have the financial strength to fund the projects. The acquisitions nearly doubled the total outstanding debt to $11.7 billion at the end of third-quarter 2015 from $6.3 billion a year ago.

This resulted in a massive increase in interest expenses. In the first three quarters of 2015, SunEdison spent $516 million on interest expenses compared with $267 million in the comparable year-ago period. Apart from this, the company has been incurring losses due to higher operating expenses.

Increased costs resulted in a loss of $287 million or 92 cents per share in the third quarter; adjusted loss of $216 million or 74 cents per share in second quarter, and non-GAAP net loss of $64.2 million or 25 cents in the first quarter. We expect the headwind to affect the fourth-quarter performance too.

Earnings Whispers

Our proven model does not conclusively show that SunEdison will beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Earnings ESP for SunEdison stands at 0.00% since both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 84 cents per share.

Zacks Rank: SunEdison’s Zacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.