Although renewable energy sources are known to be material and area-intensive, it is difficult to beat their self-sufficiency. From biomass boilers to solar and wind, they offer a path to clean reduction of reliance on the power grid. Moreover, regulatory zero net initiatives across the board increase renewable energy companies’ access to capital.
These factors alone make renewable energy stocks have staying power at scale. However, compared to the broader market, they have taken the opposite turn owing to their cyclical nature and sensitivity to the higher interest rate regime.
While the S&P 500 is up 15.5% YTD, First Trust NASDAQ® Clean Edge® Green Energy Index Fund (NASDAQ:QCLN) is down 16%.
Yet profits are made in these downturn moments. Given that fed fund futures price in three rate cuts by the end of 2024, these renewable stocks could bring long-term gains.
Clearway Energy
Clearway Energy Inc (NYSE:CWENa) (NYSE:CWEN) diversified across the US into energy storage, wind and solar, accounting for around 6,200 MW of power. This is bolstered by 2,500 MW coming from natural gas operations. In the renewable energy arena, the company ranks 5th by market share.
In May 2022, the EU-led consortium consisting of TotalEnergies (EPA:TTEF), ArcelorMittal (NYSE:MT), Axens and IFP Energies Nouvelles acquired 50% of Clearway Energy Group (CEG). In Q1 earnings delivered in May, Clearway had a net loss of $46 million, of which renewables’ loss of $44 million was offset by conventional generation with a net income of $16 million.
However, compared to the year-ago quarter, the company only slightly drained cash holdings, at $963 million vs $1 billion respectively. Against total liabilities worth $9.8 billion, Clearway has $5 billion worth of equities. With a debt-to-equity ratio of 1.5, the company confirmed its full-year $395 million CAFD guidance for 2024 and increased dividend payouts by 1.7%.
That’s because Clearway made multiple long-term investments. The $65 million worth of investments on Dan’s Mountain and Rosamond South alone are projected to yield 10% CAFD (Cash Available for Distributions Per Share). The company increased the future CAFD outlook from $415 million to $420 million.
At present dividend yield of 6.34% at $1.6408 annual dividend payout per share, CWEN stock is now $25.95. This is close to its 52-week average of $24.43. Nasdaq’s average CWEN price target is $31, with the bottom target aligned with the current price at $26 per share.
Brookfield Renewable Partners L.P.
Brookfield Renewable Partners LP (NYSE:BEP) has an even easier time accessing capital under its parent company, Brookfield Asset Management (TSX:BAM). As of May, the company holds nearly 200,000 MW of renewable energy assets in hydro, wind, solar, and distributed storage.
By 2028, Brookfield expects 10% annual growth of funds from operations (FFO). In addition to acquiring assets as a strategic model, the credence for this forecast comes from 12% FFO per unit CAGR between 2016 and 2024. More importantly, around 70% of Brookfield’s revenues are indexed to inflation with an average 13-year contract.
Brookfield increased revenue from $1.3 billion to $1.5 billion compared to the year-ago quarter. The company has a 5.79% dividend yield at $1.42 annual dividend payout. At the present price of $25, BEP stock is aligned with its 52-week average but still down from its 52-week ceiling of $30.32 per share.
That level is Nasdaq’s average price target, at $30.4. At the same time, the low estimate of $27 is still higher than the present BEP price level.
Eversource Energy
Operating in Massachusetts, Connecticut, and New Hampshire, this utility holding company aims to become carbon neutral by 2030. By the end of 2024, Eversource Energy (NYSE:ES) is on track to complete its offshore projects, Revolution Wind, Sunrise Wind, and South Fork Wind, with the latter already generating power.
The company’s FFO growth target is within the 14 – 15% range for 2025, following 6% earnings per share (EPS) 10-year growth rate since 2014. Eversource Energy offers a 5% dividend yield at an annual dividend payout of $2.86 per share.
At the present price of $57.18, ES stock is still under the 52-week average of $60.52 per share. Nasdaq’s average ES price target is $65.9 with the low estimate also aligning with the current stock price at $57 per share.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.