After another underwhelming start to the year, clean energy stocks have lately been showing signs of sizzle thanks to the unveiling of the European Union’s multibillion euro plan to reduce dependence on Russian fossil fuels.
According to the new RepowerEU plan, the European Commission has set a goal to have half the EU's energy coming from renewable sources by 2030--effectively more than double the current levels, with total costs to be offset by €84B in annual savings on imported fuel. RepowerEU says full implementation of its proposals would cut gas consumption 30% by 2030.
The EC has proposed to "introduce an obligation to have rooftop solar installations for all new buildings and all existing buildings of energy performance class D and above [the most energy-intensive]." The European Commission aims to speed up construction of wind farms and solar arrays by forcing member states to designate "go-to" zones with lower environmental standards and processes for fast-track approvals.
Unlike their fossil fuel peers, clean energy stocks have had another torrid year with the sector’s popular benchmark iShares S&P Global Clean Energy Index ETF (NASDAQ:ICLN) down 5.6% in the year-to-date mainly due to inflation pressures, supply chain snarls and a resurgence of Covid 19. However, a cross-section of Wall Street analysts is advising investors that the current market turmoil is a perfect opportunity to buy clean energy stocks at bargain prices.
Here are some top picks by the experts.
Market Cap: $2.4B
YTD Returns: -28.8%
Headquartered in Houston, Texas, Sunnova Energy International Inc. (NYSE:NOVA) provides residential energy services in the United States. The company offers electricity, as well as offers operations and maintenance, monitoring, repairs and replacements, equipment upgrades, on-site power optimization, and diagnostics services.
As of December 31, 2021, NOVA operated a fleet of residential solar energy systems with a generation capacity of approximately 1,140 megawatts serving over 195,000 customers.
After a disastrous start to the year, NOVA shares have climbed nearly 21% over the past five trading sessions after Northland initiated an Outperform rating on the stock along with a price target tagged to $30 on NOVA, implying potential upside of 46.6% from stock's last close.
According to Northland, NOVA’s current price offers "a compelling entry point" for investors looking for exposure to the residential solar market given the view that Sunnova has "a well-oiled dealership-based business model as well as very strong and dependable cash flows."
Market Cap: $5.6B
YTD Returns: -25.5%
Sunrun Inc. (NASDAQ:RUN) is a San Francisco, California-based solar company that engages in the design, development, installation, sale, ownership, and maintenance of residential solar energy systems in the United States.Sunrun also sells solar energy systems and products, such as panels and racking; and solar leads generated to customers. In addition, the company offers battery storage along with solar energy systems. Its primary customers are residential homeowners.
RUN stock has jumped 50% over the past three weeks after the company reported a Q1 GAAP loss but better than expected revenues, as customer orders jumped 39% and installed capacity improved 27% from the year-earlier period.
Sunrun also raised full-year guidance, saying it expects 25% or more growth in installed solar capacity vs. a previous forecast for 20% growth. The largest U.S. residential solar installer said it added 29,463 customers during Q1, up 20% Y/Y, bringing the company's total customer count to ~690K.
- First Solar
Market Cap: $7.7B
YTD Returns: -18.7%
Headquartered in Tempe, Arizona, First Solar, Inc. (NASDAQ: FSLR) provides photovoltaic (PV) solar energy solutions in the United State, Japan, France, Canada, India, Australia, and internationally. The company designs, manufactures, and sells cadmium telluride solar modules that convert sunlight into electricity.
Like its solar peers, FSLR shares have been on the move after Piper Sandler upgraded shares to Overweight from Neutral with a $90 price target, implying 25% upside to current price, saying recent bookings momentum provides strong volume and pricing visibility into 2024.
Piper analyst Kashy Harrison sees 2022 as a "trough margin year with the potential for improving [cost of goods sold] as logistics normalize, new contracting structures de-risking margins manifest in 2023-24, and startup expenses associated with facility construction subside."
Harrison says First Solar revenues can grow from $2.4B in 2022 to $4.3B in 2024, and EBITDA can surge from $100M in 2022 to $1.2B in 2024.
First Solar clearly stands to benefit from the U.S. Commerce Department's investigation of solar panel imports, but Harrison says her upgrade is not a call on the tariff outcome, as the company "could have pricing/volume visibility through much of 2025 by the time a preliminary tariff is announced in August."
Many solar stocks have been selling off in recent weeks in reaction to the U.S. government's probe into solar panel imports. Indeed, in its latest earnings call, NextEra Energy (NYSE:NEE) has warned that as much as 2.8 GW of solar and storage projects will be delayed by at least a year due to the U.S. Department of Commerce investigation into solar panel imports.
"If the Commerce Department were to find circumvention, we believe it would be unwinding a decade of trade practice. We are disappointed with the Commerce decision to conduct this investigation," NEE CFO Kirk Crews has told Bloomberg.
The government has until August 30 to issue preliminary findings, but with some companies reporting canceled or delayed solar panels, the industry is asking for a faster decision.
- Plug Power
Market Cap: $11.0B
YTD Returns: -33.8%
One of the more famous hydrogen companies, Plug Power Inc. (NASDAQ:PLUG) provides hydrogen fuel cell turnkey solutions for the mobility, material handling, and stationary power markets in North America and internationally.Plug Power’s fuel cell solutions address clean, renewable energy needs.
In its latest earnings call, Plug Power reported that sales nearly doubled in the first quarter, but high costs led to a wider loss. Plug Power reported Q1 Revenue of $140.8M (+95.7% Y/Y) and GAAP EPS of -$0.27, with both metrics falling short of the Wall Street consensus.
However, some Wall Street experts see the huge selloff as a buying opportunity. According to H.C. Wainwright’s Amit Dayal, the decline in PLUG shares is a blessing in disguise, with the analyst saying the company’s business is likely to improve in the coming years and the stock climbing as well. Dayal rates the stock a buy with a price target of $78, good for a massive 309% upside.
Dayal notes that Plug Power is expanding its business globally, and has forecast that 25% of the company’s estimated $909 million revenue in 2022 will come from international markets. High natural gas prices have pressured Plug Power’s fuel margins, but it has still been able to expand its service margins nevertheless.
“We believe the stock should get a better appreciation from the market on evidence of execution against margin improvements and global growth,” says Dayal.
- Rivian Automotive
Market Cap: $27.9B
YTD Returns: -69.9%
San Jose, California-based Rivian Automotive (NASDAQ:RIVN) is a new electric vehicle maker that designs, develops, manufactures, and sells electric vehicles and accessories. The company offers five-passenger pickup trucks and sports utility vehicles namely the R1T pickup truck, R1S SUV, and EDV delivery van.
With RIVN shares down nearly 70% YTD, some investors might regard buying them as trying to catch a falling knife. The selling pressure on RVN has continued even as more positive reviews on the R1T model have been published by auto industry watchers. However, Mizuho’s Vijay Rakesh is urging a contrarian approach and advising investors to buy the dip. Rakesh rates the stock a buy with a price target of $80, implying a nearly 160% upside.
In a recent report, the analyst highlighted that Rivian’s business actually looks better than many investors may realize.
Rivian aims to produce 25,000 vehicles in 2022, representing a major ramp-up in production compared to 2,553 vehicles produced in Q1 2022. The company is already adding manufacturing capacity to meet its production target amid strong demand for its vehicles. Rivian has now received more than 90,000 preorders for its truck and SUV models, compared to about 83,000 preorders in the previous update.
The automaker recently hiked the price of the R1T to $79,500 and introduced a newer cheaper version at $67,500 with fewer features and just two electric motors instead of four, a good sign of pricing power.
By Alex Kimani for Oilprice.com
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