From Barron's:
First Solar Up 14%, SunPower Up 16% on YieldCo. Plan; Merrill Surprised by the Scale
Shares of solar energy technology provider First Solar (FSLR) are up $6.87, or up 14%, at $56.61, and SunPower (SPWR) stock is up $4.40, or almost 16%, at $32.20, after the two yesterday afternoon said that they will merge certain assets into a publicly traded YieldCo.
Among the initial responses this morning is Krish Sankar of Merrill Lynch, who has an Underperform rating on First Solar and a Buy on SunPower, writes that “the potential scale of this vehicle, not to mention the implications for each development company, comes as a surprise.”
“Nevertheless this is likely to be viewed as a positive catalyst for each stock in the near-term,” he believes.
There are some concerns, such as the seasonality of solar, and the divergent tech approaches of the two firms in the solar energy field:
One obvious attribute of the proposed YieldCo is that it will be solar focused, at least in its early years. Most of the initial assets contributed to the company are likely to be North America-based, which means that there could be significant seasonality to distributable cash generation. Another consideration is the implication for each integrated development company considering their divergent solar technology bets, ownership structures, and business models. Finally, management of the combined entity, and how inherent conflicts of interest between First Solar and SunPower, and between general and limited partnership unit holders will be addressed and mitigated are key concerns, in our view.Sankar does some back-of-the-envelope math on what the two will contribute...MORE
