Are These Green Energy Companies Right For Your Portfolio?

Green energy and clean energy companies are once again at the center of news as the clean energy bill increasingly moves the U.S. economy towards greener energy sources. The move toward greener energy is not only an American theme, but a global theme as well, as many countries continue to move away from fuels.

First Solar NYSE: FSLR, is a solar company that is based in Tempe, Arizona. It primarily deals in the manufacturing and maintenance of solar panels. The company is set to increase production to 9.4 GW for the year as it looks to meet a backlog that has kept increasing in recent years. The current backlog stands at 17 GW, which as long as production remains on track, means multi-year revenue growth, at a high level. The company is set to increase capacity through multiple manufacturing facilities currently located in Malaysia, and Ohio. The backlog combined with large increases in solar investments globally is expected to result in a 30% increase in solar capacity, with a 20% CAGR over the next 5 years. First Solar did face numerous issues in the last few quarters as supply chain disruptions, which resulted in significantly lower revenue, but since then the issues have been resolved.  But the current run rate is back on track and the company should get back on track later on in 2022, and into 2023.

First Solar currently trades at around 4.5x sales currently, which will drop closer to 3x in 2023. The company should produce around $350-$400 million profit in 2023, which would put 2023 forward price-to-earnings at 30-33. The stock is currently up 18% over the last month.

Brookfield Renewable EnergyNYSE: BEPC is headquartered out of Toronto, Canada, that owns and operates numerous renewable energy assets.  The company owns multiple assets including solar facilities, hydroelectric plants, and wind farms. The company currently has $68 billion in assets under management and plans to invest over $50-55 billion in additional capacity in the coming years. Brookfield currently operates  18,100 MW (megawatts) and is on track to commission another 6400 MW of capacity by the end of 2023. Investors are clearly looking to the future as they expect significant returns on investment from the additional capacity. Furthermore, Brookfield should see revenue increase on prices increases mainly due to the current inflation environment. 

Additional capacity is the primary reason for the current estimated forward price-to-earnings ratio of 54x. With the addition of new capacity and increasing, prices analysts are currently expecting a revenue of around $4.1 billion. With electricity prices set to jump 50%, electricity generation companies should see significant increases in their bottom line. For the past couple of years, net profit margins have been around 5%, but with prices set to increase, net profit margins could head towards 6-7%. Therefore, the forward earnings could fall as low as 30-35x. And with additional capacity, that number could fall to a further 20x earnings in 2023. Considering that prices should continue to increase through 2023 unless significant steps are taken to reduce inflation, the price of the stock could yet continue to grow.

SunPower Corporation Nasdaq: SPWR is another renewable energy company that primarily deals in providing photo-voltaic energy generation systems and battery energy storage. The company primarily makes solar panels in of Philippines, and Malaysia and assembles the final product in Mexico.  The company has been struggling for the past 4-5 years primarily due to its inability to compete with cheaper Chinese alternatives. But now that the industry dynamic is slowly changing with many highly indebted solar producers in China going out of business, Sunpower should become more competitive.

Sunpower saw its revenue surge by 63% y-o-y, during the second quarter as higher shipments and improved pricing helped drive the company’s top line.  Customer growth increased by 117% y-o-y.  Sunpower is also benefitting from Sunpower Financial its zero-interest financing arm. Sunpower Financial saw an 87% increase for the latest quarter.

The stock is currently on its way to revenue of $1.5 billion, and it is yet to be seen if it can make a profit. But multiple tailwinds such as increased customer uptake and improved pricing should make push it towards profitability, and make the stock much more attractive..