The Zhitong Finance App learned that New Era Energy (NEE.US) closed up 3.8% on Wednesday and rose nearly 10% in the past two days. The stock is trying to bounce back from a sharp drop of 25% after New Era Energy Partners (NEP.US) drastically lowered growth expectations two weeks ago.
According to information, New Era Energy is also the parent company of New Era Energy Partners. The company was founded in 2014 to acquire, manage and own contract clean energy projects. These projects are expected to generate steady cash flow that will be used to pay growing allocations to the company's unitholders.
The reason New Era Energy's stock price declined was New Era Energy Partners recently announced that it would reduce the dividend growth rate from 12-15% per year to a more sustainable 5-8% per year. As New Era Energy's financial outlook is tied to New Era Energy partners, the stock price has been severely hit. New Era Energy Partners also said the company will reduce its dividend growth rate due to rising financing costs associated with higher interest rates. As borrowing becomes more expensive, management must make decisions to limit dividend growth.
Following a meeting with New Era Energy management last week, Morgan Stanley reaffirmed its “holdings increase” rating and target price of $91, and indicated non-diluted sources of financing that can replace the sale of New Era Energy Partners' assets, the full demand for renewable energy, and the potential for disclosure of new information to enhance transparency and confidence in the financial outlook.
Investors have been worried about how the company will cover between $1 billion and $2 billion in revenue if assets are not sold to New Era Energy Partners. In response, Morgan Stanley analysts expect that New Era Energy will seek tax credit transfers and project debt financing without increasing equity, renewable project sales, or non-core asset sales, and said that these financing options should not mean that expected earnings per share growth will be hampered.
Morgan Stanley said that New Era Energy is still confident that it will achieve its renewable energy reserve target by 2026. Although rising interest rates and cost inflation drive up the cost of renewable energy, its demand is still elastic.
Morgan Stanley said that the stock's current price-earnings ratio is the same as the average price-earnings ratio of utilities, but its growth is above average, profit and regulatory risks are low, and the balance sheet is strong. Therefore, Damore reiterated its “increase” rating for New Era Energy, with a target price of 91 US dollars.