Beware of These 3 Overvalued Clean Energy Stocks

NYSE: NEE | NextEra Energy, Inc.  News, Ratings, and Charts

NEE – Climate change concerns have made many governments pledge carbon neutrality by 2050. Lured by the potential growth in the clean energy industry, the space has now become overcrowded with the entry of several new players. Because the equity market is currently experiencing a pullback, clean energy stocks that have rallied based solely on investors’ optimism are expected to witness a sell-off. Hence, we think NextEra Energy (NEE), SolarEdge Technologies (SEDG), and Bloom Energy (BE) are best avoided now.

Clean energy stocks have gained significantly over the past year as most governments across the world have announced initiatives to reduce carbon emissions. Renewable energy is expected to become the next ‘big thing’ in the energy sector as countries upgrade their existing infrastructure and industries to make them carbon neutral.

Many governments have announced  plans on decarbonization, with some seeking to achieve net zero emissions by 2050. This has  induced investors to invest heavily in the clean energy space. To capitalize on the nascent sector,  many new companies have entered the clean energy industry without  product pipelines or  financial strength. As a result, many analysts believe the clean energy industry has entered a bubble.

The recent pullback in equities has caused some clean energy stocks to decline. With  fiscal stimulus spending threatening to exacerbate inflationary pressures and bond yields in an uptrend, the clean energy industry bubble may well burst soon.

Thus, we think it best to avoid overvalued clean energy stocks such as NextEra Energy, Inc. (NEE), SolarEdge Technologies, Inc. (SEDG) and Bloom Energy Corporation (BE) that are susceptible to deeper pullbacks.

NextEra Energy, Inc. (NEE)

Headquartered in Juno Beach, Florida, NEE, through its subsidiaries, generates, transmits, distributes and sells electric power to retail and wholesale customers in North America. The company generates electricity through wind, solar, nuclear and fossil fuel such as coal and natural gas facilities. NEE mainly operates through two segments — Florida Power & Light Company (FPL) and NextEra Energy Resources, LLC (NEER).

In February, NEE was  recognized as one of the World’s Most Ethical Companies for the 14th time by Ethisphere Institute. The company announced the appointment of Lynn M. Utter to its board of directors on February 12. On the same date, NEE’s board of directors  declared a regular quarterly common stock dividend of $0.39 per share. In January,  First Student, Inc., First Transit, Inc., and NEER entered  a framework agreement and announced that they are working towards a joint venture to pursue the electrification of tens of thousands of school and public transportation vehicles across the U.S. and Canada.

However, the company’s financials are not promising. NEE’s operating revenues for the fourth quarter, ended December 31, 2020, were $4.40 billion, representing a 4.2% year-over-year decline. Its net loss for the quarter was t $5 million compared to a net income of $975 million during the fourth quarter of 2019. NEE’s adjusted loss from its NEER segment was t $342 million, down 4.9% year-over-year. Its adjusted EPS decreased 39.4% sequentially to $0.40.

A consensus revenue estimate of $5.16 billion for the quarter ending June 30, 2021, represents a 0.2% decline on a year-over-year basis. In terms of non-GAAP forward price/earnings, NEE’s 29.62x is 64.6% higher than the industry average  17.99x. In terms of forward price/sales, the stock is currently trading at 6.97x, 189.2% higher than the industry average 2.41x.

NEE has lost 10.8% over the past month and closed yesterday’s trading session at $74.86. It is currently trading 14.6% below its 52-week high of $87.69.

NEE’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of C, which equates to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

NEE also has a D grade for Value and Momentum. We have also graded NEE for Growth, Sentiment, Quality and Stability. Click here to access all NEE’s ratings.

NEE is ranked #21 of 58 stocks in the F-rated Utilities – Domestic industry.

SolarEdge Technologies, Inc. (SEDG)

Based in Israel, SEDG designs, develops, and sells direct current (DC) optimized inverter systems for solar photovoltaic (PV) installations worldwide. The company offers inverters, power optimizers, communication devices and smart energy management solutions that are used in residential, commercial and small utility-scale solar installations. SEDG also offers a cloud-based monitoring platform that collects and processes information from the power optimizers and inverters and monitors and manages the solar PV system.

In February, SEDG entered  a strategic supply agreement with Sunrun Inc. (RUN), which is a leading U.S. provider of residential solar, battery storage and energy services. As a part of the agreement, RUN is expected to offer SEDG’s next generation PV inverter and Energy Hub to  residential customers. The company also announced in  February that it has been selected to supply full electrical powertrain units and batteries to produce the Fiat E-Ducato light commercial vehicle.

However, the company’s revenue for the fourth quarter, ended December 31, 2020, decreased 14.4% year-over-year to $358.11 million. Its non-GAAP gross profit was  $116.42 million, which represents a 21.6% year-over-year decline. SEDG’s non-GAAP operating income was $43.49 million, down more than 49% year-over-year. Also, the company’s non-GAAP net income decreased 36.2% year-over-year to $55.73 million, while its non-GAAP EPS declined 40.6% year-over-year to $0.98.

A consensus revenue estimate of $396.43 million for the current quarter ending March 31, 2021, represents a decline of 8.1% on a year-over-year basis. In terms of its non-GAAP forward price/earnings, SEDG’s 57.09x is 125.5% higher than the industry average of 25.32x. In terms of forward price/sales, the stock is currently trading at 7.82x, which is more than 102% higher than the industry average of 3.87x.

SEDG has lost 10.8% over the past month and closed yesterday’s trading session at $295.23.

It’s no surprise that SEDG has an overall rating of D which equates to Sell in our POWR Ratings system.

The stock also has an F grade for Growth and a D grade for Value, Stability and Sentiment. Click here to see the additional POWR Ratings for SEDG (Momentum and Quality).

SEDG is ranked #13 of 19 stocks in the F-rated Solar industry.

Bloom Energy Corporation (BE)

Operating for nearly two decades, BE is focused on the designing, manufacturing and selling of solid-oxide fuel cell systems for on-site power generation. The company offers Bloom Energy Server, which is a power generation platform that converts standard low-pressure natural gas, biogas, or hydrogen into electricity through an electrochemical process without combustion. BE offers its services to several sectors, including the banking and financial sector and healthcare sector.

A coalition of 11 companies partnered to form Hydrogen Forward, an initiative focused on advancing hydrogen development in the United States, on February 2.  It includes BE as one of the founding members. Last December, BE and El Camino Health announced the launch of the University of Illinois’ innovative Shield T3 COVID testing system and mobile laboratory at BE’s manufacturing facility in Sunnyvale, California.

However, the company’s non-GAAP operating income for the fourth quarter ended December 31, 2020 was t $11.99 million, down nearly 22% sequentially. The company’s adjusted EBITDA came in at $25.52 million, which represents a 7.8% decline sequentially. Its adjusted loss per share was  $0.08 for the quarter compared to a loss per share of $0.04 during the third quarter of 2020.

Analysts expect the company’s EPS to remain negative for fiscal 2021. In terms of forward enterprise value/ebitda, BE’s 60.47x is 353.6% higher than the industry average 13.33x. In terms of forward price/sales, the stock is currently trading at 5.25x, 232.3% higher than the industry average 1.58x.

BE has lost 25.3% over the past month and closed yesterday’s trading session at $29.93. It is currently trading 33.4% below its 52-week high of $44.95, which it hit on February 8, 2021.

BE’s poor prospects are apparent in its POWR Ratings also. The stock has an overall rating of D, which equates to Sell in our proprietary rating system.

The stock also has an F grade for Sentiment and D for Value, Stability and Quality. In addition to the POWR Ratings grades I’ve just highlighted you can see BE’s ratings for Momentum and Growth here.

BE is ranked #74 of 90 stocks in the Industrial – Equipment industry.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

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NEE shares fell $0.31 (-0.41%) in after-hours trading Friday. Year-to-date, NEE has declined -1.40%, versus a 5.40% rise in the benchmark S&P 500 index during the same period.


About the Author: Sweta Vijayan


Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...


More Resources for the Stocks in this Article

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