Why I Like The Sunedison Yield Co Model
The yield co model is a very interesting one. Essentially, a yield co is a company that is formed to own operating assets that produce what is known as a predictable income. When it comes to SUNE, the company builds solar power plants. From there, the company signs agreements with utility companies for the purchase of the power that comes from these plants. When the purchase agreements are signed, the utility companies agree to pay a specific amount of money over a long period of time, generally 20 years. However, during this time, the yield co manages the operations at the solar power plant. Once it's built, SUNE simply collects and focuses on expanding its business elsewhere. This allows management at Sunedison to focus on expansion while making money from income-generating solar power plants. While some may shun this business model, I and many others believe that it is absolutely genius.
Why I Don't Mind The Debt
The bears have had a big issue with Sunedison's debt. After all, the company owes nearly a billion dollars. However, I'm not quite as concerned about the debt as the bears are. The truth is that the debt SUNE owes is backed by tremendous amounts of assets. If needed, SUNE could simply sell its assets, pay off the debt, and have plenty of money to give investors an incredible return given the incredibly low price of Sunedison stock these days.
Another reason that I don't mind debt is that debt is part of running a business. The truth is that expansion is incredibly expensive, and even the biggest and best businesses in the world borrow money to expand. Sure, the interest SUNE pays is a bit high, but it's all part of business my friends. Ultimately, the money owed by SUNE gave them the ability to build such an incredible company in the first place. So, not only will they have no problem paying the debt off, if it wasn't for the debt, SUNE wouldn't be anywhere near as successful of a company as it is today.
The Bottom Line
The bottom line here is that SUNE is an absolutely incredible company. Sure, the company has quite a bit of debt, but the truth is that the debt isn't concerning to me and shouldn't be concerning to you. When it comes down to it, solar power is becoming even more popular than ever before, and because of the debt that SUNE has been willing to take on, the company has positioned itself to take a lion's share of this market. All in all, I'm incredibly impressed with Sunedison and see the recent declines as an opportunity to get in on future gains at a discount.
What Do You Think?
Where do you think SUNE is headed and why? Let us know your opinion in the comments below!
[Image Courtesy of Wikipedia]
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