Neil Peart famously wrote, ‘Constant change is here to stay,’ and this is especially evident in our global shift from fossil fuels to cleaner, renewable energy sources. This significant transition is supported by both grassroots movements and governmental policies. The Inflation Reduction Act of 2022, in particular, included a number of such legislative boosts to the green energy sector.
These pressures are powering a rapid expansion of the clean energy space; according to the Group Next Move Strategy Consulting firm, the renewable energy industry will reach $2 trillion by 2030. A pot that size will provide clear opportunities for smart investors, and Oppenheimer’s Colin Rusch, a 5-star analyst rated in the top 1% of the Street’s stock pros, has taken the measure of these fast-moving openings.
Rusch has delved into the inner workings of two alternative energy firms at the leading edge of the sector’s changes, Plug Power (NASDAQ:PLUG) and Sunrun (NASDAQ:RUN). These companies take widely divergent approaches to providing clean power; Rusch analyzes both to determine which is the superior renewable energy stock to Buy right now.
Plug Power
First up is Plug Power, a company specializing in hydrogen fuel cell technology. Hydrogen fuel cells convert energy, functioning as an alternative to traditional power storage batteries. The cells combine hydrogen and air with the aid of a catalyst, releasing electric energy and producing only water vapor as a by-product. It’s a technology that produces clean energy, on the spot and on demand, using chemical conversion rather than combustion, and avoiding the toxic materials frequently used in storage batteries.
Plug produces power cells using ‘green’ hydrogen for fuel, hydrogen produced using clean and/or renewable energy sources, further reducing the carbon footprint of the system. The company is involved in all aspects of the fuel cell production process, from creating new technologies to deploying power systems for the end users, including building and installing the needed infrastructure for putting fuel cell electrical generation systems into operation.
On the practical side, Plug’s fuel cells have found numerous applications, as portable power sources in place of batteries and as backup power generation instead of gas- or oil-fired generators. The company has deployed more than 69,000 fuel cell power systems and 250 hydrogen fueling stations to date and is one of the world’s largest buyers of liquid hydrogen. Plug is also expanding its production capacity, with a cutting-edge Gigafactory to produce both electrolyzers and fuel cells. The company is building up a sound niche for its products and counts large names such as Amazon, Carrefour, and Walmart among its corporate customer base.
We saw Plug’s 1Q24 financial release on May 9, and the results came in below expectations. The company reported revenue of $120.3 million, down more than 42% year-over-year and some $37.35 million below the forecast. At the bottom line, Plug’s first-quarter EPS came to a 46-cent loss per share, missing expectations by 13 cents.
When we check in with analyst Rusch, we find him taking a cautious stand on PLUG. The 5-star expert writes of this stock, “PLUG continues to do the foundational work of scaling the hydrogen market. While we are encouraged by customer activity, we believe timing of translating engineering activity into electrolyzer orders/deliveries remains unclear. We believe OpEx cuts are likely sufficient to enable positive EBITDA and are now looking for management to drive revenue growth and GM expansion via unit growth, improved pricing, COGS reduction, and ramp up of internal hydrogen production. We believe the company has significant opportunity to reduce working capital to support its cash position, notably on inventories, but continue to model use of its ATM to ensure sufficient liquidity.”
In line with this stance, Rusch rates PLUG as Perform (i.e. neutral) without suggesting a specific price target for the stock. (To watch Rusch’s track record, click here)
Overall, the Oppenheimer view matches up with the broader Wall Street take on Plug’s stock. The stock has a Hold consensus rating based on 24 recent analyst reviews, which break down to 8 Buys, 12 Holds, and 4 Sells. But these analysts might as well have said “buy” — because the stock’s average target price implies a one-year upside potential of ~106%. (See PLUG stock forecast)
Sunrun
Next on our list is Sunrun, a company in the residential solar power market. Sunrun operates in the US and boasts that it is the leading provider of such residential solar, with a larger market share than any of its peers. The company is a full-service provider, doing everything from designing solar installations to fit particular locations to installing custom-made solar power systems, built to fit single-family homes. Sunrun’s ability to create a made-to-order installation is an important selling point in the residential market, as even ‘cookie-cutter’ neighborhoods will feature numerous homes with upgrades and additions.
Sunrun’s solar installations aren’t just photovoltaic panels. The company provides those, of course, but it also provides the grid connections, the ‘smart home’ control systems, and the power storage batteries needed to turn a solar installation into a complete power solution for the home. The company designs its residential installation in consultation with the homeowner-customer to ensure that all electrical load needs of the house are fully met.
In addition to designing, building, and installing solar power solutions, Sunrun also assists its customers in paying for the service. The company offers a range of financing solutions, including long-term equipment leases, monthly-payment loans, and direct purchase arrangements.
The residential solar industry is growing, and Sunrun holds a strong position to continue building on that growth. However, the company does face headwinds in the form of high-interest rates that increase the cost of credit for its customers.
In the last financial release, covering 1Q24, the company showed a set of mixed results. The revenue figure was $458.2 million for the quarter, a total that was down 22% from 1Q23 and was $14.38 million less than had been anticipated. On earnings, the 40 cent EPS figure missed the forecast by 6 cents per share. However, management issued guidance on cash generation, predicting that the company will reach an annualized level of cash generation between $200 million and $500 million by 4Q24. Sunrun currently has $783 million in total cash among its net assets.
Oppenheimer’s Colin Rusch is impressed by Sunrun’s performance, especially by its leading position in the industry, ability to build at scale, and the projected cash generation.
“We believe the company continues to leverage its scale and sophistication into share gains and operational efficiency. We are encouraged by consistent commentary on cash generation in 2024 and increasing storage attach rates. With delivered electricity rates moving higher in most of the country as demand continues to grow driven by electrification and data center growth, we believe RUN’s position as a grid edge solution provider is becoming increasingly valuable and understand monetization of its VPP offerings is tracking ahead of expectations. We see 20-40% upside to its guidance on VPP monetization over the next 3-5 years and remain constructive on shares,” Rusch opined.
These comments support Rusch’s Outperform (i.e. Buy) rating, with a $19 price target that points toward an upside potential of ~58% on the one-year horizon.
Overall, Sunrun has a Moderate Buy consensus rating, based on 10 recent Buy reviews offsetting 7 Holds and 1 Sell. The stock is currently priced at $12.05, with a $19.55 average price target that suggests a one-year potential gain of 62%, slightly more bullish than the Oppenheimer view. (See Sunrun stock forecast)
With the results in, this top analyst’s choice is clear: Sunrun is the superior renewable energy stock to buy.
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
