When you combine the growing need for energy with a cleaner way to harness and produce it, then you end up with the proverbial win-win solution. With a growing global phenomenon firmly in place, the yieldcos are attracting more and more investors. In a new research report, Deutsche Bank starts coverage on two top companies to buy now.
The Deutsche Bank analysts, like others on Wall Street, see the yieldcos as a significant growth catalyst for the solar and broader renewables sector. They are also a much easier way for conservative investors who like the space to invest, rather than the highly volatile solar stocks.
This 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. They also note that the company’s relationship with 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.
The Deutsche Bank analysts think that this top company will continue to further diversify into hydro and transmission end markets and continue to grow cash available for distribution (CAFD) at a faster pace than current Wall Street consensus expectations. The analysts maintain in the report that the company’s competitive advantage also comes from access to lowest cost of capital as well as strong financing capability as demonstrated by innovative, industry leading financing solutions such as warehousing facilities. The bottom line is that TerraForm has all the attributes in a yieldco that long-term growth investors look for.
TerraForm investors are paid a 3.3% distribution. The Deutsche Bank price target is initiated at $50. The Thomson/First Call consensus price target for the stock is $44.56. The shares closed Tuesday at $39.26.