Paul Coster of JPMorgan commented in a note on Thursday that the recent pull-back in alternative energy stocks, specifically YieldCos, has created an "opportunity" to buy three "largely de-risked" stocks that offer "attractive" dividend yields. The companies include: 1) 8Point3 Energy Partners, 2) TerraForm Power and 3) TerraForm Global.
Coster continued that these three companies are well positioned to acquire projects from their sponsors following recent capital raises and using some spare capacity for project-level or HoldCo debt leverage.
The analyst added that under a worst case scenario, the outlook "doesn't look that bad" at current levels as investors can buy stocks that yield "attractive" returns between 7 percent and 14 percent.
The Pull-Back's Effects
Coster did however point out that the recent pull-back in the market "seriously impedes growth" for the renewable energy YieldCos, as they may not be able to issue equity to fund future acquisitions that will be accretive to earnings. Meanwhile, the growth opportunity "continues to accumulate" to "record levels," as gigawatts of projects in late-stage pipelines.
The Growth Story Hasn't Shut Permanently
Finally, Coster pointed out that if the capital markets "re-open," then the growth story will resume "quickly" and create a cycle of higher stock prices that support dividend growth. Should this scenario play out, the stocks could "quickly restore" to multiples the sector has seen in June and July. On the other hand, investors could see limited downside risk, mitigated by asset values.
Bottom line, Coster is recommending investors "might want to own" the three stocks for their dividend yields for a year or two, "even if there is no appreciation."
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