In this article, we discuss 5 most popular green energy stocks among elite hedge funds. If you want our detailed analysis of these stocks, go directly to 10 Most Popular Green Energy Stocks Among Elite Hedge Funds.
5. Sunrun Inc. (NASDAQ:RUN)
Number of Hedge Fund Holders: 31
Sunrun Inc. (NASDAQ:RUN) is an American company that manufactures solar panels and batteries for residential applications, headquartered in San Francisco, California.
Sunrun Inc. (NASDAQ:RUN) announced on February 17 its Q4 results. The company posted a loss per share of $0.11, exceeding estimates by $0.04. Revenue over the period jumped 35.84% year-on-year to $435.23 million, surpassing market consensus by $26.27 million.
On February 18, BMO Capital analyst Ameet Thakkar lowered the price target on Sunrun Inc. (NASDAQ:RUN) to $42 from $57 but kept an Outperform rating on the shares. The analyst cited the company’s “disappointing” Q4 earnings, noting that its value generation target was below expectations. However, he still sees significant upside to Sunrun Inc. (NASDAQ:RUN) shares as demand remains very strong while being “obscured by temporary margin pressures”.
In Q4 2021, the database of elite hedge funds maintained by Insider Monkey suggested that 31 funds were bullish on Sunrun Inc. (NASDAQ:RUN), with combined stakes equaling more than $1 billion. Arrowstreet Capital held the largest stake in Sunrun Inc. (NASDAQ:RUN) as of December 31, 2021, owning 9.3 million shares worth roughly $235 million.
Here is what Horizon Kinetics has to say about Sunrun Inc. (NASDAQ:RUN) 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%).
For the time being, Sunrun loses an extraordinary amount of money, an amount that has been getting larger. Perhaps there are economies of scale that will manifest in the future, so that it will attain profitability. Perhaps from the roughly one-half of Sunrun’s revenues that are from long-term customer service agreements that run up to 25 years. For now, though, the company would seem to require a lot of external financing, and that is one of the greatest business risks.”
4. SolarEdge Technologies, Inc. (NASDAQ:SEDG)
Number of Hedge Fund Holders: 34
SolarEdge Technologies, Inc. (NASDAQ:SEDG) is an Israel-based company that manufactures and markets power optimizers, solar inverters, and monitoring systems for photovoltaic arrays.
Elite hedge funds own large stakes in SolarEdge Technologies, Inc. (NASDAQ:SEDG). In Q4 2021, 34 hedge funds reported owning stakes in SolarEdge Technologies, Inc. (NASDAQ:SEDG), with total stakes worth $766.5 million. Impax Asset Management owns 754,007 shares of the company, worth $210.8 million. It is the largest stakeholder of SolarEdge Technologies, Inc. (NASDAQ:SEDG).
On February 15, SolarEdge Technologies, Inc. (NASDAQ:SEDG) posted earnings for the fourth quarter of 2021. The company posted an EPS of $1.10, missing estimates by $0.22. SolarEdge Technologies, Inc. (NASDAQ:SEDG)’s revenue increased 54.12% from the prior-year quarter to approximately $552 million, outperforming estimates by $1.96 million.
Citi analyst J.B. Lowe raised the price target on SolarEdge Technologies, Inc. (NASDAQ:SEDG) on February 17 to $320 from $310 and kept a Buy rating on the shares. The company posted a “weak” Q4 but issued Q1 guidance 3% ahead of the Street, largely on a higher revenue outlook, the analyst told investors in a research note.
Here is what ClearBridge Investments has to say about SolarEdge Technologies, Inc. (NASDAQ:SEDG) in its Q2 2021 investor letter:
“Our sustainability orientation has led us to favor renewable energy providers such as SolarEdge over traditional fossil fuel energy companies. Renewables stocks moved up very strongly over the last several quarters on optimism about huge green stimulus plans in Europe and the U.S. so we took profits and sold SolarEdge Technologies as valuations became demanding.”
3. First Solar, Inc. (NASDAQ:FSLR)
Number of Hedge Fund Holders: 36
First Solar, Inc. (NASDAQ:FSLR) is an Arizona-based company that markets solar panels and utility-scale photovoltaic power plants, in addition to technical services related to panel recycling.
Wells Fargo analyst Michael Blum lowered the price target on First Solar, Inc. (NASDAQ:FSLR) to $88 from $115 to reflect broader macro trends, keeping an Equal Weight rating on the shares.
In the fourth quarter of 2021, 36 hedge funds were bullish on First Solar, Inc. (NASDAQ:FSLR), with combined stakes valued at roughly $200 million, as compared to 31 funds in the quarter earlier, holding stakes in First Solar, Inc. (NASDAQ:FSLR) worth $266.5 million. Renaissance Technologies held a significant position in First Solar, Inc. (NASDAQ:FSLR), with 533,900 shares worth $46.5 million.
Here is what GDS Investments has to say about First Solar, Inc. (NASDAQ:FSLR) in their Q4 2020 investor letter:
“First Solar recently announced blowout results for its last fiscal quarter with earnings and revenues handily beating estimates. The Biden Administration should only accelerate the inevitable shift away from fossil fuels toward renewable energy as the costs associated with solar energy production reach parity with coal and oil production. As the following chart by the International Energy Agency makes clear, demand for oil should plateau in the 2030’s and, by the 2040’s, would account for less than 20% of global energy consumption.”
2. Enphase Energy, Inc. (NASDAQ:ENPH)
Number of Hedge Fund Holders: 50
Based in Fremont, California, Enphase Energy, Inc. (NASDAQ:ENPH) is an energy technology company that specializes in microinverters, solar generation, and home energy storage.
Enphase Energy, Inc. (NASDAQ:ENPH) reported its Q4 results on February 8. The company announced earnings per share of $0.73, exceeding estimates by $0.14. Enphase Energy, Inc. (NASDAQ:ENPH)’s revenue for the period jumped 55.84% year-over-year to $412.72 million, surpassing consensus estimates by $12.84 million. Enphase Energy, Inc. (NASDAQ:ENPH) shares rose 14.5% post-market after easily exceeding estimates for Q4 earnings and revenues, as well as guiding Q1 revenues above expectations.
On February 9, Craig-Hallum analyst Eric Stine upgraded Enphase Energy, Inc. (NASDAQ:ENPH) to Buy from Hold with a $241 price target. The analyst argued that Enphase Energy, Inc. (NASDAQ:ENPH) “emphatically” demonstrated its market leadership and ongoing strong execution as it posted Q4 results ahead of expectations and guided Q1 above estimates while navigating current market challenges.
D E Shaw owns 999,931 shares of Enphase Energy, Inc. (NASDAQ:ENPH), worth roughly $183 million, and is a prominent stakeholder of the company. Overall, 50 hedge funds held long positions in Enphase Energy, Inc. (NASDAQ:ENPH) in the fourth quarter of 2021.
Here is what ClearBridge Investments has to say about Enphase Energy, Inc. (NASDAQ:ENPH) in its Q2 2021 investor letter:
“Also in the solar space, we initiated a position in Enphase Energy (classified in the IT sector), which designs and manufactures microinverters for residential and small commercial solar photovoltaic (PV) systems. Enphase was the first company to commercialize microinverters for residential and small commercial solar PV systems. A microinverter, a type of MLPE, is a small inverter placed directly on the back of each solar module, as opposed to the traditional system of one string inverter on the side of the building.”
1. NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 55
NextEra Energy, Inc. (NYSE:NEE) is an American energy company that offers expertise in electric power, energy development, and renewable energy. NextEra Energy, Inc. (NYSE:NEE) supplies its services to customers across the United States and Canada.
On January 25, NextEra Energy, Inc. (NYSE:NEE) reported its fourth quarter results, posting earnings per share of $0.41, beating estimates by $0.01. The $5.05 billion revenue jumped 14.81% year-on-year, but missed estimates by $787.77 million.
NextEra Energy, Inc. (NYSE:NEE) declared on February 18 a $0.425 per share quarterly dividend, a 10.4% increase from its prior dividend of $0.385. The dividend is payable on March 15, for shareholders of record on March 1.
Mizuho analyst Paul Fremont lowered the price target on NextEra Energy, Inc. (NYSE:NEE) to $88 from $91 and kept a Buy rating on the shares on January 24. The analyst believes the recent underperformance of NextEra Energy, Inc. (NYSE:NEE) versus the group mostly reflects the stalled Build Back Better federal legislation rather than a fundamental change in growth prospects. He reduced the price target to reflect reduced market multiples.
Among the hedge funds tracked by Insider Monkey, 55 funds were bullish on NextEra Energy, Inc. (NYSE:NEE) in Q4 2021, up from 53 funds in the quarter earlier. Fisher Asset Management held the leading stake in NextEra Energy, Inc. (NYSE:NEE), with more than 15 million shares worth $1.40 billion.
You can also take a look at 11 Best Delivery Stocks To Buy Now and 10 ESG Dividend Stocks to Buy.
