In this article, we discuss 10 green energy stocks to watch as Europe cuts reliance on Russia.
Europe is turning towards electricity from renewables by mid next decade in a move to meet its climate targets, and cut reliance on Russian oil and gas amid the war. Even as global stock markets plummeted since Russia’s invasion of Ukrainian territory, the renewable energy sector has been soaring, and the European Renewable Energy Index surged nearly 9.3% at the end of February.
The Russian invasion of Ukraine and Europe’s reliance on Russia for oil and natural gas shows how critical a diversification of energy supplies is for achieving energy security. The Biden administration is considering energy sanctions on Russia, in addition to economic sanctions, but that’s an extremely difficult decision given the soaring oil prices in the United States and Europe.
Shift Towards Renewable Energy
Steve Cicala from the National Bureau of Economic Research said to CNBC that the European Union “should be moving at the maximum possible speed to get themselves off of Russian gas”. By 2030 the European Union wants to slash net greenhouse gas emissions by at least 55%. In terms of renewable sources used for energy generation, there is a proposal to elevate the current target of at least 32% by 2030 to at least 40%. According to the EU, “To increase EU energy independence, we need to keep investing in renewable energy sources, but we also need to do more to decrease our dependence on fossil fuels”.
Demand for the world’s notable residential manufacturers of solar panels and home batteries is soaring, which indicates that investors are open to diving into the renewable energy sector, as it remains one of the safest options for Europe to move away from its dependency on Russian oil and gas. Some of the most significant green energy companies to watch as Europe cuts reliance on Russia are Brookfield Renewable Partners L.P. (NYSE:BEP), Sunrun Inc. (NASDAQ:RUN), and Sunnova Energy International Inc. (NYSE:NOVA).
Our Methodology
We selected companies that are set to gain and lose in the current shift towards renewable energy. For each stock, we have mentioned analyst ratings for further clarification to potential buyers. Data from 924 elite hedge funds tracked by Insider Monkey was used to assess the hedge fund sentiment around each stock.
Green Energy Stocks to Watch As Europe Cuts Reliance on Russia
10. Vestas Wind Systems A/S (OTC:VWDRY)
Number of Hedge Fund Holders: N/A
Vestas Wind Systems A/S (OTC:VWDRY) was founded in 1898 and is headquartered in Aarhus, Denmark, and the company designs and installs wind turbines worldwide. The Power Solutions segment sells wind power plants. Despite being one of the top green energy companies in the world, Vestas Wind Systems A/S plunged 31.13% over the past six months.
On March 1, HSBC analyst Sean McLoughlin downgraded Vestas Wind Systems A/S to Reduce from Hold with a price target of DKK 160, down from DKK 190. The analyst expressed a preference for “earnings resilience” shown in the previous rate cycles, while warning that the 2022 margin squeeze from supply disruption could be exacerbated by the Ukraine conflict.
Vestas Wind Systems A/S dropped 3.3% on February 10 after the company cut its dividend payout by 78% to €0.05/share from €0.23/share and below the €0.10 forecast by analysts, while warning of continuing supply chain disruptions. The company reported a Q4 net profit of €20 million, far lower than the €115 million analyst consensus.
In addition to Brookfield Renewable Partners L.P., Sunrun Inc., and Sunnova Energy International Inc., Vestas Wind Systems A/S is a notable name in the renewables space.
9. Ørsted A/S (OTC:DNNGY)
Number of Hedge Fund Holders: N/A
Ørsted A/S (OTC:DNNGY) is based in Fredericia, Denmark, and the company develops and operates wind farms, solar farms, energy storage facilities, and bioenergy plants. The company offers its services in the United Kingdom, Germany, Denmark, the Netherlands, the United States, Taiwan, Japan, and South Korea. The stock plummeted 28.63% over the last six months.
In a press release on February 2, Ørsted A/S reported a Q4 GAAP EPS of DKK7.50, and the company’s revenue came in at DKK30.66B, up 97.2% year-over-year.
HSBC analyst Adam Dickens on March 1 downgraded Ørsted A/S to Hold from Buy with a price target of DKK 910, down from DKK 1,200. The analyst sees a “deteriorating mid-term outlook” after the company failed to win competitive leasehold auctions for offshore sites, saying “intense competition is now becoming the norm.”
8. Iberdrola, S.A. (OTC:IBDRY)
Number of Hedge Fund Holders: N/A
Iberdrola, S.A. (OTC:IBDRY) is a Spanish company that is involved in the generation and supply of electricity in Spain and internationally. The company markets electrical power using renewable sources like wind, hydro, solar photovoltaic, combined cycle gas, nuclear, biomass, and through the installation of batteries.
On February 28, Citi analyst Antonella Bianchessi raised the price target on Iberdrola, S.A. to €12.60 from €12.10 and kept a Buy rating on the shares.
In a February 23 press release, Iberdrola, S.A. reported a net profit of €3.88 billion for FY21, and a revenue of €39.11 billion, up 18.0% year-over-year.
Iberdrola, S.A. is a fully integrated utility with a high market cap and plenty of green assets. Similar to Enel Chile S.A. (NYSE:ENIC), it also has ambitious investment plans, which warrants a buy upside. The company deals in multiple renewable sources of energy, and is positioned to gain as Europe cuts reliance on Russia for oil and gas, moving towards alternatives.
7. JinkoSolar Holding Co., Ltd. (NYSE:JKS)
Number of Hedge Fund Holders: 10
JinkoSolar Holding Co., Ltd. (NYSE:JKS) is based in Shangrao, China, and the company designs and develops photovoltaic products. It also provides solar system integration services and carries out commercial solar power projects.
On January 31, Goldman Sachs analyst Brian Lee lowered the price target on JinkoSolar Holding Co., Ltd. to $26 from $29 and kept a Sell rating on the shares as part of a broader research note previewing Q4 results in the solar energy space. The analyst cites logistics, input cost, and policy headwinds, also noting that JinkoSolar Holding Co., Ltd. is dealing with cash flow and debt as “structural issues”.
On November 30, JinkoSolar Holding Co., Ltd. dropped 6% pre-market after Q3 GAAP earnings missed estimates and its Q4 revenue forecast also fell short of expectations. JinkoSolar Holding Co., Ltd. expects Q4 revenues of $1.8 billion-$2.2 billion, below $2.29 billion analyst consensus, with gross margin expected in the 13%-16% range and total shipments of 7.3-8.8 GW. It is one of the stocks that analysts have not upgraded despite the shift towards renewable energy.
According to the fourth quarter database of Insider Monkey, 10 hedge funds were bullish on JinkoSolar Holding Co., Ltd., with total stakes amounting to $40.4 million. Millennium Management is the biggest shareholder of the company, with 242,153 shares worth $11.1 million.
6. TransAlta Corporation (NYSE:TAC)
Number of Hedge Fund Holders: 14
Headquartered in Calgary, Canada, TransAlta Corporation (NYSE:TAC) is a company that owns and operates hydro, wind and solar, natural gas-fired, and coal-fired facilities for electricity generation. TransAlta Corporation serves municipalities, medium and large industries, businesses, and utility customers.
On December 14, TransAlta Corporation declared a C$0.05 per share quarterly dividend, in line with previous. The dividend is payable on April 1, to shareholders of record on March 1.
TransAlta Corporation announced on February 1 that it has made a $2 million equity investment in Ekona Power’s Series A funding round. The investment will help support the commercialization of Ekona’s novel technology that produces cleaner and lower-cost turquoise hydrogen. TransAlta Corporation believes hydrogen, as a fuel source, is a promising pathway to decarbonize the electricity sector and provide dispatchable, net-zero generation.
TD Securities analyst John Mould lowered the price target on TransAlta Corporation to C$17 from C$17.50 and kept a Buy rating on the shares on January 6.
Among the hedge funds tracked by Insider Monkey, 14 funds were bullish on TransAlta Corporation in Q4, up from 12 funds in the preceding quarter. David Rosen’s Rubric Capital Management held the biggest stake in the company, with more than 5 million shares worth $57.70 million.
Hedge funds are pouring into TransAlta Corporation amid the shift to renewable energy, and they also remain bullish on Brookfield Renewable Partners L.P., Sunrun Inc., and Sunnova Energy International Inc..
5. Ameresco, Inc. (NYSE:AMRC)
Number of Hedge Fund Holders: 18
Headquartered in Framingham, Massachusetts, Ameresco, Inc. (NYSE:AMRC) provides energy efficiency solutions, infrastructure upgrades, energy security and resilience, asset sustainability, and renewable energy solutions to industrial and corporate customers across the United States and Canada.
In its Q4 earnings report, published on February 28, Ameresco, Inc. posted earnings per share of $0.50, topping market consensus by $0.07. Revenue over the quarter jumped 32.32% year-on-year to approximately $416 million, surpassing estimates by $67.29 million.
On March 1, Canaccord analyst Jed Dorsheimer lowered the price target on Ameresco, Inc. to $85 from $100 and kept a Buy rating on the shares. The analyst said his lower multiple represents a 20% premium to the group but also reflects the secular contraction. He feels the premium is warranted given Ameresco, Inc.’s leading position in energy efficiency.
Among the hedge funds tracked by Insider Monkey at the end of December 2021, 18 funds were long Ameresco, Inc., up from 16 funds in the quarter earlier. Driehaus Capital, the largest company shareholder, elevated its stake in Ameresco, Inc. by 88% in Q4, with 256,615 shares worth roughly $21 million.
4. SunPower Corporation (NASDAQ:SPWR)
Number of Hedge Fund Holders: 20
SunPower Corporation (NASDAQ:SPWR) is a California-based company that delivers residential, commercial, and industrial solar solutions worldwide. Maxeon Solar Technologies announced a new supply agreement with SunPower Corporation, governing the supply of solar panels from Maxeon to SunPower Corporation for use in its residential channels in the U.S. and Canada.
On February 17, Baird analyst Ben Kallo lowered the price target on SunPower Corporation to $20 from $34 and kept an Outperform rating on the shares. The analyst noted the company continues to transform into a residential-focused solar energy solutions company and with the recent announcement of the Commercial and Industrial Solutions business sale to TotalEnergies SE, he estimates that the company is now strategically complete and poised to outperform.
SunPower Corporation reported its fourth quarter results on February 16, posting a GAAP EPS of $0.11, surpassing estimates by $0.15. The revenue jumped 12.50% from the prior-year quarter, reaching $384.53 million, outperforming estimates by $14.76 million.
According to the Q4 database of Insider Monkey, 20 hedge funds were bullish on SunPower Corporation, with collective stakes amounting to $118 million. D E Shaw is the biggest stakeholder of the company, with 3.2 million shares worth $67.4 million.
3. Brookfield Renewable Partners L.P. (NYSE:BEP)
Number of Hedge Fund Holders: 21
Brookfield Renewable Partners L.P. is a renewable power company that generates electricity by hydroelectric, wind, solar, distributed generation, pumped storage, cogeneration, and biomass sources. These renewable power generating facilities are primarily located in North America, Colombia, Brazil, Europe, India, and China.
As Europe lowers its reliance on Russia for oil and gas, Brookfield Renewable Partners L.P. is uniquely positioned to fill the gap in the renewables space, since it already operates in Europe. The stock has gained 15% over the past month as oil and gas prices soared over 30% and solar stocks surged as a result.
Brookfield Renewable Partners L.P. declared a $0.32 per share quarterly dividend, a 5.3% increase from its prior dividend of $0.30. The dividend will be paid on March 31, to shareholders of record on February 28.
On February 10, Wells Fargo analyst Jonathan Reeder lowered the price target on Brookfield Renewable Partners L.P. to $40 from $46 and kept an Overweight rating on the shares. In the nearer-term, Brookfield Renewable Partners L.P. share price performance may be driven more by macro factors, namely interest rate concerns, the analyst contended.
A total of 21 hedge funds were bullish on Brookfield Renewable Partners L.P. in the fourth quarter of 2021, up from 17 funds in the earlier quarter. Select Equity Group held the leading stake in the company, with 1.13 million shares worth $40.5 million.
Clearbridge Investments mentioned Brookfield Renewable Partners L.P. in its Q1 2021 investor letter. Here is what the firm said:
“U.S. renewables utility Brookfield Renewable was another detractor. Brookfield Renewable is a pure-play renewables operator and developer headquartered in Canada and domiciled in the U.S., focused on international hydro, solar, wind and storage technology. As more private and public institutions announce ambitious carbon reduction initiatives, Brookfield Renewable’s globally diversified, multi-technology renewables business makes it an attractive partner. Its development pipeline stands at 18,000 megawatts, providing confidence the company can meet its targeted double-digit cash flow growth through to 2025. Shares moderated amid expectations of rising bond yields, and a cool-off on the green trade.”
2. Sunnova Energy International Inc. (NYSE:NOVA)
Number of Hedge Fund Holders: 25
Sunnova Energy International Inc. is a leading residential solar and energy storage service provider, with customers across the United States. In Q4 2021, 25 hedge funds were bullish on Sunnova Energy International Inc., holding combined stakes of approximately $150 million.
On February 23, Sunnova Energy International Inc. increased its 2022 customer additions guidance by 2,000 customers and reaffirmed its 2022 financial guidance. 2022 full-year guidance is as follows: Customer additions of between 85,000 and 89,000, up from prior guidance of between 83,000 and 87,000, and net of amounts recorded in revenue, of between $134 million and $154 million, unchanged from prior guidance.
Baird analyst Ben Kallo lowered the price target on Sunnova Energy International Inc. on February 28 to $46 from $56 and kept an Outperform rating on the shares. The analyst noted that Sunnova Energy International Inc. posted arguably one of its cleanest quarters since it went public and reiterated its guidance. He said the company continued to execute on its plan of expanding energy offerings for residential customers, increasing its dealer partners, and establishing new partnerships while deepening existing relationships.
1. Sunrun Inc. (NASDAQ:RUN)
Number of Hedge Fund Holders: 31
Sunrun Inc. is a California-based company that designs and sells residential solar energy systems in the United States. The company has over 600,000 customers and has sold its solar services in 22 states, including DC and Puerto Rico. The company reported a revenue of $435.23 million for Q4 2021, up 35.8% year-over-year, beating market consensus by $26.27 million.
Morgan Stanley analyst Stephen Byrd said on February 18 that Sunrun Inc.’s solar install growth exceeded expectations in Q4, but management called out omicron-related labor productivity and fulfillment costs, product mix, and rapid backlog growth as drivers for “the relatively disappointing quarter”. The COVID-related and product mix shift issues that impacted margins in Q4 are expected to reverse, driving higher margins over the course of 2022. The analyst kept an Overweight rating and a $91 price target on Sunrun Inc. shares.
In the fourth quarter of 2021, 31 hedge funds held long positions in Sunrun Inc., as compared to 37 funds in the prior quarter. Tiger Global Management is the biggest shareholder of the company, with more than 7 million shares worth $242.6 million.
Here is what Horizon Kinetics has to say about Sunrun Inc. in its Q2 2021 investor letter:
“What this table did not cover is valuation. What’s expensive, what’s cheap? A good business that is too expensive is not a good investment. The most expensive business on the table is Sunrun. Sunrun is the nation’s largest residential rooftop solar panel system seller/installer. Sunrun’s valuation might also shed Thumbnail valuation.
To start at the top of the income statement, Sunrun shares trade at 10.3x revenues. The most profitable company in the S&P 500, Microsoft, trades at 13x revenues. Sunrun operates at a loss. Obviously, not only is tremendous growth anticipated, but tremendous profitability, too.
Let’s simply accept that investors have correctly anticipated Sunrun’s future success and make that the starting point for a valuation exercise.
If, 10 years from now, Sunrun is ultimately valued at 25x net income, and if today’s $9.5 billion valuation is appropriate, that would require $380 million of net income ($9,500 million ÷ 25).
Let’s say Sunrun will have the same net profit margin as the average S&P 500 company, which is 10%. That means it would need $3,800 million of sales to generate that level of earnings ($380 mill ÷ 10%).
Since sales are now $920 million, they would have to rise by 4.1x in the next 10 years. That would require annual sales growth of 15.2%.
You see how neatly that all works: investors accept the company’s 10-year, 15% annual sales growth projections, and if a 10% net profit margin and a P/E of 25x earnings are reasonable, then the company will have a $9.5 billion market cap at that time. Except that is the current price. That means a 10-year return of zero.
In order to get a 10% annualized return from the stock, Sunrun would need to be priced at a P/E of 65x its earnings 10 years from now, if at a 10% net margin. Or it would have to have some combination of lower P/E and higher growth and/or higher profit margin.
In the meantime, this is Sunrun’s recent pattern of revenue growth and profitability (the company did recently increase its estimate of installed-capacity growth in 2021 from 20-25% to a new estimate of 25% to 30%).
You can also take a look at 10 Gold Stocks to Buy Amid Russian Attack on Ukraine and 10 Cryptocurrencies to Watch Amid Russia’s Attack on Ukraine.
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This article is originally published at Insider Monkey.
