While most industries have withered amid the COVID-19 pandemic, battered by lockdowns, low demand and supply-chain disruptions, the renewable energy space has so far survived the crisis relatively well. And because 2021 is expected by many to mark a change in the world’s trajectory–away from catastrophic climate change and toward a cleaner, greener energy landscape–the renewable energy sector is likely to thrive this year and beyond.
President Joe Biden’s ambitious roadmap to decarbonizing the U.S. economy, which includes a carbon-free power sector by 2035 and net-zero carbon emissions for the country by 2050, should usher unprecedented investments in green energy technologies — from solar, wind, and other sustainable solutions to hydrogen fuel cells and waste management infrastructures. While the industry leaders appear to be hogging all the attention in the clean energy space, many companies have yet to be recognized by investors despite their emerging quickly as economically competitive and more accessible, sustainable power suppliers.
With efforts worldwide showing consistency, the green energy sector has the potential to generate robust growth rates this year and beyond.
Because spending on green energy projects is expected to be significant this year, we believe under-the-radar stocks Atlantica Sustainable Infrastructure plc (AY), ALLETE, Inc. (ALE), and Covanta Holding Corporation (CVA) are positioned to deliver solid returns.
Atlantica Sustainable Infrastructure plc (AY)
Based in the U.K., AY owns, acquires and manages natural gas, renewable energy assets, transmission and transportation infrastructures, and water assets in the U.S. , Canada, Mexico, Peru, Chile, Uruguay, Spain, Algeria, and South Africa. The company has 25 assets comprising 1,496 MW of aggregate renewable energy installed generation capacity, 343 MW of natural gas-fired power generation capacity, and 10.5 million cubic feet per day of water desalination assets.
This month , AY was recognized as one of the World’s 100 Most Sustainable Corporations in the 17th edition of the Global 100 Most Sustainable Companies Index. The achievement demonstrates the company’s corporate longevity and its efforts to maintain long-term sustainable growth.
Last month, , the company entered into an agreement with a subsidiary of Algonquin Power & Utilities Corp. to acquire a 20MW solar plant in Colombia. The investment should help AY venture into a new market, with attractive growth prospects for renewables.
AY’s revenue has increased 3.3% year-over-year to $302.99 million for the third quarter ended September 30, 2020, attributable to the increase in solar assets in North America. Its net profit rose 103.7% from the year-ago value to $89.38 million, while its EPS increased 104.7% from the prior-year quarter to $0.88 over this period. The company’s production from wind assets increased by 5.5% compared with the same period in 2019.
A consensus EPS estimate of $0.05 for the quarter ending March 30, 2021 represents a 112.5% improvement from the year-ago value. The consensus revenue estimate of $247.98 million for the next quarter represents 17.9% growth from the same period last year. The stock has gained 60.9% over the past year.
How does AY stack up for the POWR Ratings?
A for Trade Grade
B for Buy & Hold Grade
A for Peer Grade
B for Industry Rank
B for Overall POWR Rating.
The stock is ranked #18 of 59 stocks in the Utilities – Domestic industry.
ALLETE, Inc. (ALE)
Headquartered in Duluth, Minnesota, ALE is an energy company operating through Regulated Operations, ALLETE Clean Energy, and Corporate and Other segments. The company is involved in the development, acquisition, and operation of clean and renewable energy projects. It owns and operates approximately 660 megawatts of wind energy generation.
This month Minnesota Power, an ALE company, announced plans to deliver 100%t carbon-free energy to customers by 2050. In its Integrated Resource Plan, the company will formulate plans to expand wind and solar resources and invest in a resilient and flexible transmission and distribution grid. This should help the company advance in the clean energy industry and provide reliable and affordable energy to its customers.
The company’s two wholly owned subsidiaries secured tax equity funding of nearly $350 million this month for two recently completed wind energy sites. ALE intends to capitalize on its expertise and reputation as one of the nation’s leaders in renewable energy investment to continue to develop clean-energy solutions for its customers.
ALE’s operating revenue has increased 1.9% year-over-year to $293.9 million in the third quarter ended September 30, 2020. Its net income rose 30.4% from the prior-year quarter to $40.7 million, while its EPS increased 30% year-over-year to $0.78 over this period.
A consensus EPS estimate of $3.61 for 2021 indicates a 7.8% increase year-over-year. Also, ALE beat the Street’s EPS estimates in three of the trailing four quarters, which is impressive. The consensus revenue estimate of $1.24 billion for the current year represents a 5.8% increase from the same period last year. The stock has gained 2.3% year-to-date.
ALE’s strong fundamentals are reflected in its POWR Ratings. It has a “Buy” rating with a “B” for Trade Grade, Peer Grade and Industry Rank. It is ranked #21 of 59 stocks in the same industry.
Covanta Holding Corporation (CVA)
Founded in 1992, CVA offers waste and energy services to municipal entities primarily in the United States and Canada. The company operates infrastructure for the conversion of waste to energy, and engages in waste transport and disposal, and other renewable energy production businesses.
This month CVA entered a partnership with the Town of North Hempstead, NY for sustainable waste disposal. The Town will utilize the Covanta Hempstead Waste-to-Energy facility for an initial five-year term with an option to extend for an additional 10 years. The agreement should boost CVA’s profitability and strengthen its cash balance in the coming months.
Last month, CVA and Biffa plc announced the commencement of construction of the Protos Energy Recovery Facility in England. This project demonstrates CVA’s sustained progress in executing its strategic plans to grow in the sustainable energy market.
CVA’s revenue for the third quarter ended September 30, 2020 has increased 5.6% year-over-year to $491 million. The company’s operating income grew 13.6% from the year-ago value to $50 million, while its adjusted EBITDA rose 2.4% year-over-year to $128 million. Its net cash from operating activities increased 44% to $36 million over this period.
A consensus EPS estimate for the quarter ending March 30, 2021 represents a 41.7% improvement year-over-year. Moreover, CVA beat the Street’s EPS estimates in three of the trailing four quarters, which is impressive. The consensus revenue estimate of $474.98 million for the next quarter represents a 1.5% increase year-over-year. The stock has gained 11% year-to-date.
It is no surprise that CVA is rated “Strong Buy” in our POWR Ratings system. It has an “A” for Trade Grade, Buy & Hold Grade and Peer Grade. Among the 18 stocks in the Waste Disposal group, it is ranked #3.
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AY shares were trading at $40.23 per share on Wednesday afternoon, down $2.64 (-6.16%). Year-to-date, AY has gained 5.92%, versus a 1.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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