Greenlight Capital 2014 Q1 Investor Letter

David Einhorn GREENLIGHT CAPITALGreenlight Capital’s 2014 Q1 investor letter is out. You can download the pdf of the letter here: Greenlight Capital 2014 Q1 Investor Letter. David Einhorn revealed two new positions in US companies: SunEdison (SUNE) and CONN’s Inc (CONN). Here is what David Einhorn said in Greenlight Capital’s 2014 Q1 investor letter about SunEdison:

SUNE, formerly known as MEMC, is a developer of solar power plants for business and utilities. The declining cost of solar energy combined with the rising cost of conventionally produced electricity should position SUNE power as a winner. The company has built a large pipeline of attractive projects secured by credit-worthy buyers of electricity. Until recently, the good business was mixed in with two bad ones: manufacturing wafers for semiconductor companies, and assembling commodity solar modules for developers. Historically, the company’s poor balance sheet forced it to sell many of its solar development projects at discounted prices to raise capital.

The company has now exited the solar module assembly business and is in the process of monetizing its semiconductor wafer business through an IPO. Later this year, we expect the company will IPO a newly-created Yieldco, which will house its most attractive solar projects rather than selling them to third parties. NRG Yield Inc. is a comparable company thats trades at 12x EBITDA and has a 3% dividend yield. Were Yieldco to trade at 9x EBITDA and a 5% dividend yield it would imply a value for the solar business of ~$34 per share. SUNE expects to run its development business close to breakeven in future periods. Adding in the value of the soon-to-be IPO’ed semiconductor business and subtracting a modest amount of corporate net debt would suggest a sum of the parts value for SUNE of ~35 per share. Our average entry price is $15.55 and SUNE shares ended the quarter at $18.84.

Here is what Einhorn said about CONN:

CONN is a specialty retailer of appliances, furniture, mattresses and electronics with 79 locations in Texas and the Southwest. CONN finances 77% of customer purchases through its proprietary subprime credit portfolio. In February, the company announced 33% comparable store sales growth in Q4 with strong gross margins. However, it also announced increased credit losses and reduced earnings guidance from a range of $3.80-$4.00 to a range of $3.40-$3.70 for calendar 2014. Given the market’s past experience with deterioration in subprime credit, the stock reaction was severe: The price fell from $79 at the start of the year to $32 on the news. We believe that this is a retailer with 15-20% unit growth and current double digit comparable store sales growth, and that the market overreacted to moderately bad news. We acquired shares at an average price of $35.49 and they ended the quarter at $38.85.

Related Articles:

Greenlight Capital 2013 Q3 Investor Letter

Greenlight Capital 2012 Q3 Investor Letter

Greenlight Capital 2012 Q2 Investor Letter

Greenlight Capital 2011 Q4 Investor Letter

Greenlight Capital 2011 Q3 Investor Letter

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