Three months can feel like three years in the fast-evolving solar power business, and longer than that for hyperactive SunEdison (NYSE: SUNE), which has emerged as the industry’s pacesetter.

When last we reviewed the Aggressive Portfolio holding back in March we highlighted the value of its project pipeline and of its interests in its “yieldco” income vehicle affiliate TerraForm Power (NASDAQ: TERP).

TerraForm provides a 3.5% tax-deferred yield growing more than 20% annually for the asset managers and income funds that have gobbled up its shares with gusto since last summer’s IPO. The stock is up 18% from the first closing price following the IPO almost a year ago.

SunEdison, meanwhile, uses TerraForm as a cheap source of capital and an eager buyer of its developed renewable power projects, knowing all along that within two years it will be skimming half of TerraForm’s cash flow growth by virtue of the incentive distribution rights it has retained as the yieldco’s sponsor.

Three months ago, SunEdison and TerraForm had just digested a large third-party acquisition, and we opted not to increase a price target last raised in October.

And all that’s happened since is that SunEdison’s stock has jumped 39% in response to the rapid development of generating capacity for sale to TerraForm, dramatic expansion by way of acquisitions in the largest emerging markets with significant diversification into wind and hydro power, advanced plans to launch a second yieldco focused on those emerging-markets projects and a strategic review that could see the company transform itself into a distribution-paying partnership operating as its yieldcos’ general partner. 


Source: SunEdison presentation

So, yeah, it’s been a busy spring. So busy has SunEdison been with new investments, in fact, that it remains deeply cash flow negative at the moment, not that anybody cares given the highly visible path of yieldco dropdowns on terms increasingly favorable to SunEdison.

All this bustle and the long line investors waiting to throw their money at SunEdison and its projects will last as long as low interest rates stick around, and also depend on the continued economic growth in the top emerging markets like Brazil, India and China.

The odds of these long-term trends continuing are good but not overwhelmingly so, and in the meantime the gap between SunEdison’s current price and its ultimate potential has narrowed quickly — its shares are up 63% since we recommended them just over a year ago.

So while we expect considerable long-term gains from here, the time for adding still doesn’t seem quite right. With rates recently on the rise, emerging markets in turmoil and hedge funds that have flocked to SunEdison on their usual hair-trigger, there could be a better opportunity soon enough. Until then SUNE is a Hold, and it could offer a profit-taking opportunity if frustrated short-sellers continue to cover losing bets into the upcoming foreign yieldco IPO.


Source: SunEdison presentation

Our earlier solar pick, Growth Portfolio recommendation First Solar (NASDAQ: FSLR), is still up 35% since we recommended it in August 2013. But that’s a byproduct of a well-timed entry point rather than recent performance. Over the last 12 months, First Solar has lost 30%.

The company offers an alternative photovoltaic cell technology that could prove a better fit than standard PV for large-scale utility projects. It also has a recent history of generating free cash flow, and looks cheaper than SunEdison on all backward-looking valuation measures.

But First Solar lacks SunEdison’s supercharged project pipeline, and as a result its quarterly results have been notoriously inconsistent. And its claimed cost-efficiency edge in large-scale utility arrays may actually prove to be a liability, since small-scale direct generation by electricity consumers has been growing much faster than the mega-projects.

First Solar was late to the yieldco party, and teaming up with rival SunPower (NASDAQ: SPWR) to launch 8point3 Energy Partners (NASDAQ: CAFD) limits its upside from the venture. A week after its IPO CAFD is trading modestly below the offering price, lacking the initial momentum of TerraForm.

Last week, perennial rumors of takeover interest from First Solar technology and marketing partner General Electric (NYSE: GE) circulated again, and — who knows  — one day someone could find the company’s inexpensive solar development platform worth a bid.  

But right now the company is struggling to generate enthusiasm in SunEdison’s ample shadow, and the share price chart’s not looking great.

We’re more interested in hedging our exposure to First Solar than adding to it at this point. Sell half of your initial position in FSLR.

Our third and final current solar pick, Aggressive Portfolio recommendation Jinko Solar (NYSE: JKS) remains largely a manufacturer of the increasingly commoditized PV cells and modules, though it also has a project development sideline that, with a lot of luck, might one day make it China’s answer to SunEdison.

For the moment, it’s enough that Jinko continues to grow rapidly and profitably, growing revenue 36% year-over-year in the most recent quarter while selling for just 9 times this year’s expected earnings. The stock has returned 16% since we recommended it almost a year ago. JKS remains a Hold.