The cleantech industry, which includes solar energy, wind power, and hydropower, have been gaining traction with increasing concerns over climate change across the globe. President-elect Joe Biden’s climate ambitions have given a further boost to cleantech stocks, as investors expect the world’s largest economy to be on a path to energy transition.
Cleantech companies are also constantly innovating and trying to address issues like storage capacity and cost. According to The International Energy Agency’s (IEA) Renewable 2019 report, renewable energy capacity is set to expand 50% between 2019 and 2024, primarily led by solar energy.
The ETF iShares S&P Global Clean Energy Index Fund (ICLN), which seeks to track the investment results of an index composed of global equities in the clean energy sector, has gained 88% year-to-date, versus the S&P 500’s 10.1% return. Moreover, the economy is expected to be more favorable for renewable energy stocks as the President-elect is expected to make a historic investment in clean energy, climate research, and innovation so that the United States achieve net-zero emissions no later than 2050.
As a result, cleantech stocks such as Xylem Inc. (XYL), Enphase Energy, Inc. (ENPH), and Power Integrations, Inc. (POWI) are emerging leaders in their field and are expected to perform well in 2021 and beyond.
Enphase Energy, Inc. (ENPH)
ENPH is the world’s leading supplier of microinverter-based solar-plus-storage systems. Headquartered in Petaluma, California, ENPH operates in more than 21 countries. Together with its subsidiaries, the company designs, develops, and sells microinverter systems for the solar photovoltaic industry in the United States and internationally. The company has shipped more than 30 million inverters so far.
The company reported strong third quarter (ended September 2020) results primarily driven by the rise in demand for its microinverter products. ENPH shipped roughly 478 megawatts DC, or 1,442,743 microinverters. Revenue increased 42.2% sequentially to $178.5 million. Non-GAAP Gross profit margin increased to 41% driven by disciplined pricing and cost management. While non-GAAP net income increased 5.8% year-over-year to $41.8 million, non-GAAP EPS increased 76.5% sequentially to $0.30.
Analysts expect ENPH’s revenue to increase 21.5% for the quarter ending December 2020 and 61.8% next year. The company’s EPS is expected to increase 34.7% this year, 44.5% next year, and at a rate of 36.6% per annum over the next five years. ENPH’s earnings surprise history looks impressive with the company beating consensus EPS estimates in each of the trailing four quarters.
On November 16th, ENPH entered into an agreement with MSpectrum, the renewable energy division of Manila Electric Company (MERALCO). MSpectrum will distribute the ENPH’s IQ 7 family of microinverters to residential and commercial installers across the Philippines in the first quarter of 2021. Earlier this month, ENPH announced a strategic partnership with DMEGC Solar Energy to develop high-efficiency Enphase Energized AC modules (ACM) for the European residential solar market. Cutler Bay Solar Solutions, Florida’s largest family-owned solar-plus-storage installation company, delivered more than 1.5 MWh of Enphase Encharge storage systems to Florida Homes. The stock has gained 393.9% year-to-date and is currently trading 3.1% below its 52-week high.
ENPH’s POWR Ratings reflect this promising outlook. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, and Peer Grade. Among the 19 stocks in the Solar industry, it’s ranked #1.
Xylem Inc. (XYL)
Founded in 2011, XYL is a leading global water technology company dedicated to solving the world’s most challenging water issues. The company enables customers to transport, treat, test and efficiently use water in public utility, residential, and commercial building services, and industrial and agricultural settings. A Fortune 1000 global water technology provider, XYL operates in three segments — water infrastructure, applied water, and measurement and control solution.
XYL’s operating margin was up by 520 basis points to 6% for the third quarter that ended September 2020. EPS of $0.62 surpassed the consensus estimate by 21.6%. In fact, XYL’s earnings surprise history looks impressive with the company missing the consensus estimate in just one of the trailing four quarters. Analysts expect XYL’s revenue to increase 6.6% next year. The company’s EPS is expected to increase 73.9% for the quarter ending March 2021, and 35.6% next year.
A couple of months back, XYL took measures to help prevent water shortages in the United Kingdom with the help of Anglian Water. In the words of Patrick Decker, the President and CEO of the company, “This project with Anglian Water, and our managed network partner, Arqiva, exemplifies the power of data and smart technology to address water scarcity issues.” Last month, XYL declared a fourth quarter dividend of $0.26 per share payable on December 3rd. The stock closed Friday’s trading session at $94.38, gaining 19.8% year-to-date. It is presently trading 4.7% below its 52-week high of $99.06.
How does XYL stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Industry Rank
A for Overall POWR Rating
The stock is also ranked #4 out of 38 stocks in the Industrial – Manufacturing industry.
Power Integrations, Inc. (POWI)
Operating for more than three decades, POWI designs, develops, manufactures, and markets analog and mixed-signal integrated circuits, and other electronic components and circuitry used in high-voltage power conversion. With the help of POWI’s EcoSmart energy-efficiency technology, the company has prevented billions of dollars’ worth of energy waste and millions of tons of carbon emissions. The company’s integrated circuits enable compact, energy-efficient AC-DC power supplies for a vast range of electronic products including smartphones, appliances, smart utility meters, LED lights and numerous industrial applications.
POWI’s revenue increased more than 6% year-over-year to $121.1 million for the third quarter that ended September 2020. It was primarily driven by continued growth in fast charging for mobile devices and improved demand from the appliance market. Communications’ revenue increased 32%. Net income increased 12.3% sequentially to $14.8 million. EPS increased 2.6% year-over-year to $0.40.
Analysts expect POWI’s revenue to increase 13.5% for the quarter ending December 2020 and 12.7% next year. The company’s EPS is expected to increase 21.1% this year, 12.9% next year, and at a rate of 10.6% per annum over the next five years. POWI’s earnings surprise history looks impressive with the company beating consensus EPS estimates in each of the trailing four quarters.
Last month, POWI announced the MinE-CAP IC for high power density and universal input AC-DC converters, which reduces volume of AC-DC converters by up to 40%. The MinE-CAP leverages the small size and low RDSon of PowiGaN gallium nitride transistors to actively and automatically connect and disconnect segments of the bulk capacitor network depending on AC line voltage conditions. POWI’s InnoSwitch family of ICs which was launched in 2014 surpassed shipments of one billion units. On a year-to-date basis, POWI has rallied 39.9% to close Friday’s session at $69.18. During the past six months, POWI has soared 25.1%.
It’s no surprise that POWI is rated “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade, Buy & Hold Grade, and Industry Rank and a “B” for Peer Grade. In the 86-stock Semiconductor & Wireless Chip industry, it is ranked #25.
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ENPH shares were trading at $132.78 per share on Monday afternoon, up $3.19 (+2.46%). Year-to-date, ENPH has gained 408.15%, versus a 12.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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