Is TerraForm Power, Inc. a Buy?
TerraForm Power (NASDAQ: TERP) has been an abysmal investment over its short life as a public company. Overall, the stock is down nearly 60% since its IPO in 2014, while the S&P 500 has rallied more than 26% over that same time frame. That said, TerraForm's outlook has brightened considerably now that leading Canadian alternative asset manager and renowned value creator Brookfield Asset Management (NYSE: BAM) is on track to take over control later this year. Given the steps Brookfield plans to take to reposition the renewable power company, as well as its proven track record, TerraForm looks like a compelling buy right now.
One of the reasons TerraForm Power has lost so much value over the past few years is that the company's now-bankrupt former parent loaded it up with debt to finance growth. In just a few short years, TerraForm's debt ran up from a few hundred million dollars to more than $4.5 billion. That leverage became an unsustainable weight when its sponsor's financial situation deteriorated, which ultimately forced TerraForm to suspend shareholder distributions and use that cash to reduce debt. While the company has since gotten debt down to $4 billion, that's still too much leverage for a company of its size. As a result, TerraForm Power can't access the capital markets at favorable rates to finance growth initiatives.
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Source: Fool.com
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