Energy Business

JPMorgan Says 'Rent to Own' 3 High-Yielding Clean Energy Yieldcos

TerraForma Global

TerraForma Global Inc. (NASDAQ: GLBL) owns and operates renewable energy generation assets worldwide. It generates electricity through solar, wind and hydro-electric projects with a total combined capacity of 987.8 megawatts. The company serves utility, commercial, industrial and governmental customers. The company was founded in 2014 and is as a subsidiary of SunEdison.

Analysts point out that TerraForma Global is for now an emerging markets play and, given the size of the company’s global target markets and their renewable obligations, it is unlikely to see any lack of growth projects. In addition, currency, interest rate and regulatory risks are unlikely to surface for the next 12 to 24 months. Like all the outfits, if the equity capital markets warm back up to offerings, the landscape could quickly change for the company.

JPMorgan calculates the distribution at be at a whopping 13.5%. The price target is $17, and the consensus target is a tiny $8. Shares closed Thursday at $8.94.

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TerraForm Power

This company may be just the right stock for investors that like the sector but want 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. Formerly known as SunEdison Yieldco, the company changed its name last year and is perhaps one of the highest profile companies operating as a yieldco. Some Wall Street analysts see distributions rising to 5.65% by 2017.

The JPMorgan team feels that the combination of dividends and a growth-oriented company in the renewable energy field makes good sense for the short term. 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 6.01% distribution. The JPMorgan price target is a whopping $41, and the consensus target is $35.44. Shares closed Thursday at $22.01.

ALSO READ: Why Merrill Lynch Sees About 50% Upside in TerraForm Power

The JPMorgan idea is solid: Buy the beaten down shares, own them for a couple of years for the distributions and hope you see a little capital appreciation tossed in. And who knows, in those couple of years the entire market attitude could swing them back into favor.

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