TerraForm Power Inc. (NASDAQ: TERP) was running with the bulls Tuesday morning, following a crucial upgraded from a key brokerage firm. Oppenheimer sees some solid upside in this utility, not to mention investment grade assets that set it apart from its competitors.
The brokerage firm has an Outperform rating and a $10 price target that reflects its estimate of intrinsic portfolio value, also implying an upside of roughly 16%. Oppenheimer’s run-off scenario suggests $10 per share in value, with a 10% discount rate on future dividends. The firm is also assuming that SunEdison and TerraForm close the Invenergy and Vivint Solar transactions, respectively. However this does exclude SunEdison’s interest payment support and that TerraForm accrues sufficient cash from operations to pay off all of its debt.
There are governance issues still looming, but the concerns are overdone. Considering recent management changes, Oppenheimer believes many investors have rightfully identified concerns about arm’s-length dealing between TerraForm and SunEdison, despite the formal arrangements to ensure fairness. While the firm is somewhat cautious on this issue, it believes that TerraForm remains a strategic asset to SunEdison.
Also Oppenheimer believes that TerraForm’s investment-grade assets support the cash flow. While the firm assumes a 10% discount rate on future dividends, it believes that the company’s cash flows are investment-grade and should trade in line with similar assets. At a 5% discount rate, the value of shares goes to $13. Oppenheimer employs a 10% discount rate to account for uncertainty around terms on TerraForm’s liquidity resources and governance risk.
Oppenheimer detailed in its report:
We are upgrading TerraForm Power to Outperform as we believe shares are currently trading well below the intrinsic value of the asset portfolio, with risk/reward at current levels substantially weighted to the upside. With acquisition resources limited due to the Invenergy and Vivint Solar deals (which we expect to close), we believe the run-off scenario provides an appropriate base case for investing in the stock. We believe the most recent leg down on shares after management changes is overdone and offers a compelling entry point on shares.
Shares of TerraForm were trading up over 21% at $8.37 Tuesday, with a consensus analyst price target of $23.94 and a 52-week trading range of $6.73 to $42.66.
ALSO READ: 6 Analyst Stock Picks With Massive Upside Targets
Is Your Money Earning the Best Possible Rate? (Sponsor)
Let’s face it: If your money is just sitting in a checking account, you’re losing value every single day. With most checking accounts offering little to no interest, the cash you worked so hard to save is gradually being eroded by inflation.
However, by moving that money into a high-yield savings account, you can put your cash to work, growing steadily with little to no effort on your part. In just a few clicks, you can set up a high-yield savings account and start earning interest immediately.
There are plenty of reputable banks and online platforms that offer competitive rates, and many of them come with zero fees and no minimum balance requirements. Click here to see if you’re earning the best possible rate on your money!
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
