December 11th, 2017

2 Cleantech Stocks to BUY, 2 to AVOID

The cleantech industry is getting significant attention lately thanks to the participation of countries across the globe in addressing the climate change concerns and optimism over President-elect Joe Biden’s plans to take aggressive steps in this regard. However, not all cleantech stocks are well-positioned to ride this wave. While Tesla (TSLA) and NextEra Energy (NEE) are expected to remain strong going into 2021 based on their strong fundamentals, it may not be easy for Workhorse (WKHS) and Sunworks (SUNW) to catch the rally anytime soon. In fact, weak fundamentals may lead to price depreciation for these two stocks.

 With the growing concern about climate change, governments across the globe have been taking measures to replace the traditional energy sources with green and sustainable sources. In the United States, president-elect Joe Biden’s plans related to the clean energy industry is raising optimism over the growth prospects of cleantech companies. As a result, the stock markets are significantly rewarding cleantech stocks lately.

However, a cleantech tag doesn’t ensure solid performance for a stock. The cleantech space is becoming overcrowded with many new entrants and many companies are yet to be in a position to benefit from the trend. So, investors should be judicious while picking stocks for riding the cleantech boom.

Tesla, Inc. (TSLA) and NextEra Energy, Inc. (NEE) reported strong third quarter results. With the growing market for Electric Vehicles (EVs) and increasing demand for solar energy and wind energy, these two stocks are well-positioned to continue to see gains based on their expansion and strong revenue performance.

On the other hand, Workhorse Group, Inc. (WKHS) and Sunworks Inc. (SUNW) have been struggling to compete with their peers because of their weak revenues and earnings performance. 

2 Stocks to Buy:

Tesla, Inc. (TSLA)

Based in Palo Alto, California, TSLA is a pioneer in the EV market. The company designs, develops, manufactures, and sells EVs, electric vehicle powertrain components, and stationary energy storage systems in the United States, China, Norway, and internationally. TSLA operates in two segments Automotive, and Energy Generation and Storage.

TSLA’s total revenue increased 39.2% year-over-year to $8.8 billion for the third quarter ended September 2020 primarily driven by the growth in automotive. The automotive revenues increased 42.2% year-over-year to $7.6 billion. The company’s operating income increased 210% year-over-year to a record level of $809 million, resulting in a 9.2% operating margin. The energy storage business also reached record deployments of 759 MWh in the third quarter.

The consensus EPS estimate of $3.90 for the next year indicates a 72.6% improvement year-over-year. Moreover, TSLA beat the street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $44.95 billion for the next year indicates 45.5% growth from the same period last year.

TSLA announced a new style of battery cell during its battery day held in September which would allow it to produce cells that are more energy-dense, safer and reduce costs. The company announced this month that it planned to start making EV chargers in China in 2021. TSLA is also expected to explore a new hatchback model in Europe. The stock has gained more than 586% year-to-date and reached its 52-week high of $574 on November 25th.

How does TSLA stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

A for Peer Grade

A for Industry Rank

A for Overall POWR Rating

You can’t ask for better. The stock is also ranked #1 out of 34 stocks in the Auto & Vehicle Manufacturers industry.

NextEra Energy, Inc. (NEE)

The world’s largest producer of wind and solar energy, NEE was founded in 1984. The company generates, transmits, and distributes electric energy in the United States and Canada. NEE operates through its subsidiaries NextEra Energy Resources, Florida Power & Light Company (FPL), NextEra Energy Services, and NextEra Energy Transmission.

NEE delivered strong results for the third quarter ended September 2020. Adjusted EPS increased 11.3% year-over-year to $2.66. On an adjusted basis, earnings increased 12.7% year-over-year to $1.311 billion. NextEra Energy Resources had a record quarter of origination of 2,200 MW including the world's largest standalone battery storage project.

The consensus EPS estimate of $2.50 for the next year indicates a 9.2% improvement year-over-year. Moreover, NEE beat the street EPS estimates in three out of the trailing four quarters, which is impressive. The consensus revenue estimate of $20.92 billion for the next year indicates 6.6% growth from the same period last year.

A couple of months back, NEE acquired GridLiance Holdco, LP and GridLiance GP, LLC which are affiliates of Blackstone for roughly $660 million. The company has also made a $15 billion bid for Kansas City-based utility Evergy Inc (EVRG). The stock has gained 25.5% year-to-date and is currently trading 8.8% below its 52-week high.

NEE’s POWR Ratings reflect this promising outlook. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, and Peer Grade and a “B” for Buy & Hold Grade and Industry Rank. Among the 62 stocks in the Utilities - Domestic industry, it’s ranked #1.

 Stocks to avoid:

Workhorse Group, Inc. (WKHS)

Founded in 2007, WKHS is an American technology company focused on providing sustainable and cost-effective drone-integrated electric vehicles to the last-mile delivery sector. The custom-built drone HorseFly drone connected to WKHS’ Aeres App, helps deliver safely and efficiently to the doorstep. The company’s C-Series Vans are all-electrical with composite technology and a 100-mile range.

WKHS reported a net loss of $84.1 million for the third quarter ended September 2020. The increased net loss was due to the increase in interest expense. The company’s loss per share was $0.78. WKHS’ operating income in the third quarter was a loss of $9.8 million. The consensus EPS estimate of $0.45 for the next year indicates a 79.9% decline year-over-year.

Last month, WKHS received a purchase order for 500 of its all-electric C-1000 delivery vehicles from Pritchard Companies (Pritchard). The company submitted its formal "Type Certification" application to the Federal Aviation Administration ("FAA") for its HorseFly Unmanned Aerial System (UAS) on October 28th. The stock has gained more than 816% year-to-date but is currently trading 10.1% below its 52-week high.

Sunworks Inc. (SUNW)

Operating for over three decades, SUNW is a premier provider of high performance solar power systems. The company provides photovoltaic based power systems for the agricultural, commercial, industrial, public works, and residential markets. SUNW has been strategically expanding its footprint throughout California, Nevada, Oregon, Florida and Texas along with partnerships across the United States.

SUNW’s total revenue decreased 58.4% year-over-year to $7.3 million for the third quarter ended September 2020. The company reported a net loss of $2.9 million and loss per share was $0.17. Analysts expect the company to report a loss per share of $0.12 for next year. The consensus revenue estimate of $47.6 million for this year 20.4% decline from the same period last year.

On November 12th, SUNW announced that its proposed merger with the Peck Company Holdings, Inc. (PECK) failed to secure stockholder approval. Last month, the company signed $10 million in new commercial and agriculture projects in the third quarter. The stock has gained 342.4% year-to-date but is currently trading 34.9% below its 52-week high of $8.50.

SUNW’s has an overall rating of “Neutral” in the POWR Ratings.  The stock has a “C” Buy & Hold grade, a "D" for Peer Grade, and a "C" for Industry Rank. Among the 19 stocks in the Solar industry, it’s ranked #13.

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TSLA shares were trading at $585.76 per share on Friday afternoon, up $11.76 (+2.05%). Year-to-date, TSLA has gained 600.12%, versus a 14.61% rise in the benchmark S&P 500 index during the same period.



About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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