Energy

Analyst Says to Buy the Weakness in Renewable Energy YieldCos

When the markets get dicey, along with high-profile momentum stocks, one of the first groups to get hit hard are the clean technology and solar stocks. The recent wild swings caused by end of the quarter window dressing and the ongoing Greek potential default may be giving investors an incredible opportunity to buy top solar and renewable energy stocks.

A new report from Deutsche Bank says that the current weakness is providing an attractive entry point for long-term investors. The analysts continue to view yieldcos as a significant growth catalyst for the solar and broader renewables sector, and expect yieldcos to not only increase the availability of capital, but also provide significantly lower cost of capital to the renewables sector.

We ran a screen and searched for the top yieldcos to buy now. All have been hit hard.

Abengoa Yield

This stock is down over 20% since early June. Abengoa Yield PLC (NASDAQ: ABY) is a total return company that owns a diversified portfolio of contracted renewable energy, power generation and electric transmission assets in North America, South America and Europe. The company is focused on providing a predictable and growing quarterly dividend-equivalent distribution to shareholders. Some on Wall Street see the company’s dividend rising to as high as the 9% range by 2018. The RBC team is expecting 10% to 20% dividend growth over the next two years from the company.

Abengoa investors are paid an outstanding 4.27% distribution. The Thomson/First Call consensus price target is $41.64. Shares closed Wednesday at $31.96.

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NRG Yield

This stock is down almost 25% since early June. NRG Yield Inc. (NYSE: NYLD) owns a diversified portfolio of contracted renewable and conventional generation and thermal infrastructure assets in the United States, including fossil fuel, solar and wind power generation facilities that provide the capacity to support more than a million American homes and businesses. The company’s thermal infrastructure assets provide steam, hot water and/or chilled water, and in some instances electricity, to commercial businesses, universities, hospitals and governmental units in multiple locations. Some Wall Street analysts see distributions increasing by 15% to 18% over the next two years.

NRG Yield investors are paid a 3.6% distribution. The consensus price target is $29.03, and shares ended trading on Wednesday at $21.57.

Pattern Energy Group

This company is down 15% since mid-June. Pattern Energy Group Inc. (NASDAQ: PEGI) is an independent power company with a portfolio of 12 wind power projects, with a total owned interest of 1,636 megawatts, in the United States, Canada and Chile that use proven, best-in-class technology. Pattern Energy’s wind power projects generate stable long-term cash flows in attractive markets and provide a solid foundation for the continued growth of the business. Analysts around Wall Street see the distribution rising to over 7% by 2018, and distributions rising 12% to 15% over the next two years.

Pattern Energy investors are currently paid a sizable 4.93% distribution. The consensus price objective is $34.66. The stock closed on Wednesday at $28.29.

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TerraForm Power

This stock has held up much better, down less than 5% since early June, and may be just the right stock for investors that like the sector, but want a more conservative route. TerraForm Power Inc. (NASDAQ: TERP) owns and operates solar and wind generation assets serving utility, commercial and residential customers. Its portfolio consists of solar projects located in the United States, Canada, the United Kingdom and Chile with total nameplate capacity of 887.1 megawatts. The company was formerly known as SunEdison Yieldco and changed its name last year, and it is perhaps one of the highest profile companies operating as a yieldco. Some Wall Street analysts see distributions rising to 5.65% by 2017.

Many Analysts feel that the combination of dividends and a growth-oriented company in the renewable energy field makes good sense. The also note that the company’s relationship with the sponsor SunEdison is a positive because of its large development pipeline and incentive to grow TerraForm’s portfolio, which is composed of projects with long-term contracts in place, solid counterparties with high investment grade credit ratings, very diversified assets (including solar and wind projects) and low asset ages.

TerraForm investors are paid a 3.41% distribution. The consensus price target is posted at $44.10. The shares closed Wednesday at $37.90.

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The Deutsche Bank team points out in the report that even in a rising interest rate environment investor interest in the sector should remain solid. They also believe that we are still in the early innings of a multiyear growth cycle of yieldcos, and with discounted entry points, patient investors stand to do well.

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