4 Clean Energy Stocks Set To Outperform Says Evercore ISI

With Earth Day just around the proverbial corner, analysts at Evercore ISI initiated affirmative coverage on four clean energy stocks.

Plug Power Inc. PLUG: Analyst James West initiated coverage at Outperform with a price target of $42; its current price is $27.24.

Headquartered in Latham, New York, Plug Power is a supplier of hydrogen fuel cell solutions designed to replace conventional batteries in electric-powered equipment and vehicles.

West predicted a strong future for the company, writing that hydrogen will become “more commercially viable between now and 2030 while H2’s greater potential should unfold after 2030. This sanguine, long-term view should allow PLUG to achieve 3-4% share in a +$250B market in 2030.”

Furthermore, West forecast new commercial opportunities for Plug Power later in the year that would enable its expansion into adjacent markets and the securing of partnerships or joint ventures with other companies.

Despite what West described as the “pending restatement of the company’s previously reported financials and a non-cash charge” along with the challenge from rival technologies including lithium-ion batteries, West defined Plug Power as a “strong company with a defensible and growing business with long-term franchise value.”

Related Link: Companies around the world are shifting gears towards clean technology to adhere to more sustainable business practices. Check out Benzinga's Cleantech Small Cap Conference on April 22 to learn more!

Enphase Energy Inc. ENPH: West initiated coverage at Outperform and a $184 price target; its current price is $150.01.

Fremont, California-headquartered Enphase is a provider of home energy solutions for the solar photovoltaic industry. West noted the company’s “dominant position in the U.S. residential microinverter market” as a crucial component in its performance, adding the company is successfully meeting the needs of its sector.

“ENPH is evolving from purely selling hardware to providing more recurring services and streamlining the installation process, thereby increasing its revenue potential per home,” West wrote. “The company stands out in the clean tech world as it already has strong margins and generates positive free cash flow.”

West raised a light-red flag on potential risks regarding the company’s ability to deploy new products, its effort to penetrate the U.S. small commercial property market and whether an uptick in interest rates will discourage homeowners seeking to finance solar installations. He also cautioned the company’s planned international expansion by pointing out “the extremely fragmented nature of the European market.”

Still, West acknowledged the company has already made an impact, noting it has shipped more than 32 million of its microinverters and deployed 1.4 million of its systems in more than 130 countries.

Related Link: Explore Small Cap Clean Tech Stocks at Benzinga's smallCAP Conference on April 22

Sunrun Inc. RUN: West initiated coverage at Outperform and an $87 price target; its current price is $52.16.

West pegged San Francisco-headquartered Sunrun as “the clear U.S. residential solar market leader and as such enjoys scale advantages in a massively underpenetrated market.” He pointed out the company’s $4.2 billion in 2020 net earning assets, adding its’ 550,000 customers will allow the company to “upsell and cross-sell opportunities.”

West admitted there were risks to consider: a market shift from leasing solar systems to ownership, a slower than anticipated movement away from traditional energy sourcing to clean tech solutions, competition in the sector, inflation’s effect on equipment and installation costs, and the impact that higher interest rates would have on financing solar installations and on the wider capital markets.

But West was not convinced that interest rate risk would be detrimental to its continued performance, observing that the company “has access to cheap project financing and utility rates will also rise incentivizing customers to still look at solar.”

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Sunnova Energy International Inc. NOVA: Analyst Sean Morgan initiated coverage at Outperform with a price target of $52; its current price is $38.

Houston-based Sunnova provides solar and energy storage services in the U.S. residential market, which Morgan identified as accounting for roughly 3% of the nation’s 84 million single-family homes.

Morgan praised the company’s service offerings, pointing out that most of its customers “are contracted with durations spanning more than 15 years, with many power purchase agreements, loans, and leases with 25-year tenors. This dynamic should drive increasing profitability, along with a larger and more stable base of cash flows, as the company matures.”

The company’s biggest risks, Morgan added, would be a “reversal of the clean energy-friendly federal and state tax and energy policies, such as solar tax abatements and favorable net metering.” As with West’s analyses, Morgan raised concern on what higher interest rates could create in this sector.

But on the positive side, Morgan highlighted that increased battery power storage rates will strengthen its relations with new and current customers while an expansion into other services, including electric vehicle charging, would further strengthen its position in the market.

(Image courtesy Mohamed Hassan / Pixabay.)