TerraForm Power's Q2 Print Energizes Oppenheimer

Solar and wind operator TerraForm Power Inc TERP reported second-quarter results Monday that convinced Oppenheimer to turn bullish on the stock.

The Analyst

Oppenheimer's Colin Rusch upgraded TerraForm Power from Perform to Outperform with a new $14 price target.

The Thesis

TerraForm's earnings report shows management is succeeding in executing on multiple "critical" initiatives, Rusch said in the upgrade note. (See the analyst's track record here.) 

After closing the Saeta transaction in early July, TerraForm is moving quickly to take advantage of new opportunities in Western Europe, the analyst said. The transaction is also revamping TerraForm's capital structure through a recent corporate debt upgrade; repricing of the term facility; and progress in executing project financing, he said. 

TerraForm expects to improve its long-term average generation by around 6 percent by combining the benefits of its long-term service agreement with General Electric Company GE and its own solar asset improvement plan, Rusch said. This should result in incremental revenue and cost reductions as soon as the first quarter 2019, which would be ahead of the company's two-to-three-year time frame, he said. 

While the company doesn't offer any concrete guidance, its management expressed confidence in TerraForm's ability to grow its dividends by 5-8 percent annually through 2022 and maintain a payout of 80-85 percent of cash available for distribution, according to Oppenheimer. 

Price Action

TerraForm shares were trading higher by 3 percent to $10.97 at the time of publication Wednesday. 

Related Links:

Raymond James Updates Clean Tech Outlook: M&A, Yield In Focus

Pattern Energy Vs. TerraForm Power: A Clean Energy Pair Trade From Goldman Sachs