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3 Alternative Energy Stocks to Buy Amid Insufficient H2 Investment
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Rapidly declining input price continues to boost the wind energy market in the United States. Looking ahead, expanded offshore wind leasing in the United States might generate up to $4.5 billion in new federal revenues. This makes us optimistic about alternative energy companies, which deal with wind energy. Also, impressive projections for the electric vehicle market are expected to boost the prospects of U.S. renewable stocks. However, the United States is lagging behind its Asian and European counterparts in terms of investments in the hydrogen market, despite this market’s ample growth opportunities. The forerunners in the U.S. alternative energy industry are Evergy (EVRG - Free Report) , Chesapeake Energy (CHK - Free Report) and Ameresco (AMRC - Free Report) .
About the Industry
The Zacks Alternative Energy industry can be fundamentally segregated into two sets of companies. While one group is involved in the generation and distribution of alternative energy and electricity from sources like wind, natural gas, biofuel, hydro and geothermal, the other set is engaged in the development, design and installation of renewable projects involving these alternative energy sources. The industry also includes a handful of stocks that offer fuel cell energy solutions, which have gained popularity as an affordable clean energy of late. Per a report by the U.S. Energy Information Administration, in 2020, consumption of renewable energy in the United States grew for the fifth year in a row, reaching a record high of 11.6 quadrillion British thermal units (Btu), or 12% of total U.S. energy consumption.
3 Trends Shaping the Future of the Alternative Energy Industry
Wind Energy – A Key Growth Catalyst: Among alternative energy sources, wind energy continues to make noticeable progress in the United States. As stated by the American Clean Power Association (ACPA), wind is currently the largest source of renewable electricity generation in the United States, providing more than 7.4% of the country’s electricity. Per ACPA’s latest report published in December 2021, expanded offshore wind leasing in the United States has the capacity to generate up to $4.5 billion in new federal revenues and lead to $120 billion in clean energy investments. This reflects the rapid growth pattern observed in the wind energy industry, which must have encouraged ACPA to make such a solid projection. Notably, factors like government policies such as extended federal Investment Tax Credit for offshore wind energy along with the extension of production tax credit have been boosting overall wind capacity additions lately. Also, a steadily decreasing input price along with an increasing flow of investments from all over the world has been instilling growth in the wind industry. The unsubsidized cost of energy for wind power has fallen 71% from 2009 to 2020. This reflects the solid opportunity that the U.S. wind market currently boasts, which in turn should boost the overall expansion of the alternative energy industry.
Lag in H2 Investment Demands Attention: Although hydrogen is playing the part of a major growth catalyst in the U.S. clean energy space, these days, the nation lags China, Japan and European countries in terms of infrastructure and research investments in the green hydrogen space. Government and industry investment in hydrogen as an energy carrier adds up to $2 billion per year in Asia and the European Union, as stated by a report sponsored by major oil companies, automakers, hydrogen producers and fuel cell manufacturers, which Greentech Media released in October 2020. However, the U.S. Department of Energy funding for hydrogen and fuel cells has ranged from approximately $100 million to $280 million per year over the last decade, much lower than that invested by its Asian and European counterparts. So, while there remains room for growth in the green hydrogen space for America, the government must expand its funding for research and expansion of industry activities within the hydrogen market.
EV Market Boom to Boost Clean Energy: With enhanced environmental awareness, more and more individuals are choosing to switch from gasoline-powered vehicles to electric vehicles (EVs) each year, thereby boosting the market for EVs. In the United States, favorable government policies and support in terms of subsidies and grants, tax rebates and other non-financial benefits in the form of car pool lane access along with declining battery prices have been boosting the EV market. The U.S. EV market is expected to reach 6.9-million unit sales by 2025, reflecting a significant improvement from the 1.4 million unit sales forecast for 2020, as estimated by Frost & Sullivan’s analysis. Such an impressive outlook surely bolsters the growth prospect of clean energy stocks like Evergy, which is home to the largest electric vehicle charging network in the United States.
Zacks Industry Rank Reflects Grim Outlook
The Zacks Alternative Energy industry is housed within the broader Zacks Oils-Energy sector. It carries a Zacks Industry Rank #168, which places it in the bottom 34% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few alternative energy stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags S&P 500 & Sector
The Alternative Energy Industry has underperformed the Zacks S&P 500 composite as well as its sector over the past year. The stocks in this industry have collectively gained 12.4% while the Oils-Energy Sector has risen 24.4%. The Zacks S&P 500 composite has rallied 28.5% in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, which is commonly used for valuing alternative energy stocks, the industry is currently trading at 3.61 compared with the S&P 500’s 15.84 and the sector’s 4.40.
Over the last five years, the industry has traded as high as 4.88X, as low as 3.45X, and at the median of 4.45X, as the charts show below.
EV-EBITDA Ratio (TTM)
3 Alternative Energy Stocks Worth to Add in Your Portfolio
Chesapeake Energy: Based in Oklahoma City, OK, Chesapeake is an exploration and production company engaged in the acquisition, exploration and development of properties to produce oil, natural gas and NGLs from underground reservoirs. In November 2021, the company completed the acquisition of Vine, an energy company focused on the development of natural gas properties in the over-pressured stacked Haynesville and Mid-Bossier shale plays in Northwest Louisiana, for $2.2 billion. This buyout is expected to boost the stock’s position in the energy market.
The Zacks Consensus Estimate for Chesapeake’s 2021 earnings has improved 16.1% in the past 60 days while that for 2022 has improved 42% over the same time frame. The company delivered an average earnings surprise of 23.05% in the last four quarters. Chesapeake currently sports a Zacks Rank #1 (Strong Buy).
Price & Consensus: CHK
Evergy: Based in Kansas City, MO, this company provides clean, safe and reliable energy to 1.6 million customers in Kansas and Missouri. In December 2021, Evergy proposed a suite of energy efficiency programs to the Kansas Corporation Commission, which aims to provide Kansas residential and business customers with $42 million in anticipated net bill savings. The proposal will also offer $13 million in enhanced assistance for low-income and rural customers. Such proposals, if approved, will benefit Evergy’s existing customers along with attracting new customers.
The Zacks Consensus Estimate for Evergy’s 2021 earnings has improved 3.9% in the past 60 days and indicates a year-over-year improvement of 11.9%. The company delivered an average earnings surprise of 22.44% in the last four quarters. Evergy currently carries a Zacks Rank #2 (Buy).
Price & Consensus: EVRG
Ameresco: Based in Farmingham, MA, is a leading renewable energy asset developer, owner and operator. Its comprehensive portfolio includes energy efficiency, infrastructure upgrades, asset sustainability and renewable energy solutions. Earlier in December, the company announced its partnership with Merthyr Tydfil Council on an energy conservation project, a deal projected to expand Ameresco’s presence in the United Kingdom. Such partnerships are favorable for expanding this stock’s global footprint.
The Zacks Consensus Estimate for Ameresco’s 2021 earnings has moved up 11.7% in the past 60 days while that for 2022 has risen 16.6%. The company delivered an average earnings surprise of 64.51% in the last four quarters. Ameresco currently holds a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: AMRC
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3 Alternative Energy Stocks to Buy Amid Insufficient H2 Investment
Rapidly declining input price continues to boost the wind energy market in the United States. Looking ahead, expanded offshore wind leasing in the United States might generate up to $4.5 billion in new federal revenues. This makes us optimistic about alternative energy companies, which deal with wind energy. Also, impressive projections for the electric vehicle market are expected to boost the prospects of U.S. renewable stocks. However, the United States is lagging behind its Asian and European counterparts in terms of investments in the hydrogen market, despite this market’s ample growth opportunities. The forerunners in the U.S. alternative energy industry are Evergy (EVRG - Free Report) , Chesapeake Energy (CHK - Free Report) and Ameresco (AMRC - Free Report) .
About the Industry
The Zacks Alternative Energy industry can be fundamentally segregated into two sets of companies. While one group is involved in the generation and distribution of alternative energy and electricity from sources like wind, natural gas, biofuel, hydro and geothermal, the other set is engaged in the development, design and installation of renewable projects involving these alternative energy sources. The industry also includes a handful of stocks that offer fuel cell energy solutions, which have gained popularity as an affordable clean energy of late. Per a report by the U.S. Energy Information Administration, in 2020, consumption of renewable energy in the United States grew for the fifth year in a row, reaching a record high of 11.6 quadrillion British thermal units (Btu), or 12% of total U.S. energy consumption.
3 Trends Shaping the Future of the Alternative Energy Industry
Wind Energy – A Key Growth Catalyst: Among alternative energy sources, wind energy continues to make noticeable progress in the United States. As stated by the American Clean Power Association (ACPA), wind is currently the largest source of renewable electricity generation in the United States, providing more than 7.4% of the country’s electricity. Per ACPA’s latest report published in December 2021, expanded offshore wind leasing in the United States has the capacity to generate up to $4.5 billion in new federal revenues and lead to $120 billion in clean energy investments. This reflects the rapid growth pattern observed in the wind energy industry, which must have encouraged ACPA to make such a solid projection. Notably, factors like government policies such as extended federal Investment Tax Credit for offshore wind energy along with the extension of production tax credit have been boosting overall wind capacity additions lately. Also, a steadily decreasing input price along with an increasing flow of investments from all over the world has been instilling growth in the wind industry. The unsubsidized cost of energy for wind power has fallen 71% from 2009 to 2020. This reflects the solid opportunity that the U.S. wind market currently boasts, which in turn should boost the overall expansion of the alternative energy industry.
Lag in H2 Investment Demands Attention: Although hydrogen is playing the part of a major growth catalyst in the U.S. clean energy space, these days, the nation lags China, Japan and European countries in terms of infrastructure and research investments in the green hydrogen space. Government and industry investment in hydrogen as an energy carrier adds up to $2 billion per year in Asia and the European Union, as stated by a report sponsored by major oil companies, automakers, hydrogen producers and fuel cell manufacturers, which Greentech Media released in October 2020. However, the U.S. Department of Energy funding for hydrogen and fuel cells has ranged from approximately $100 million to $280 million per year over the last decade, much lower than that invested by its Asian and European counterparts. So, while there remains room for growth in the green hydrogen space for America, the government must expand its funding for research and expansion of industry activities within the hydrogen market.
EV Market Boom to Boost Clean Energy: With enhanced environmental awareness, more and more individuals are choosing to switch from gasoline-powered vehicles to electric vehicles (EVs) each year, thereby boosting the market for EVs. In the United States, favorable government policies and support in terms of subsidies and grants, tax rebates and other non-financial benefits in the form of car pool lane access along with declining battery prices have been boosting the EV market. The U.S. EV market is expected to reach 6.9-million unit sales by 2025, reflecting a significant improvement from the 1.4 million unit sales forecast for 2020, as estimated by Frost & Sullivan’s analysis. Such an impressive outlook surely bolsters the growth prospect of clean energy stocks like Evergy, which is home to the largest electric vehicle charging network in the United States.
Zacks Industry Rank Reflects Grim Outlook
The Zacks Alternative Energy industry is housed within the broader Zacks Oils-Energy sector. It carries a Zacks Industry Rank #168, which places it in the bottom 34% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few alternative energy stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags S&P 500 & Sector
The Alternative Energy Industry has underperformed the Zacks S&P 500 composite as well as its sector over the past year. The stocks in this industry have collectively gained 12.4% while the Oils-Energy Sector has risen 24.4%. The Zacks S&P 500 composite has rallied 28.5% in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, which is commonly used for valuing alternative energy stocks, the industry is currently trading at 3.61 compared with the S&P 500’s 15.84 and the sector’s 4.40.
Over the last five years, the industry has traded as high as 4.88X, as low as 3.45X, and at the median of 4.45X, as the charts show below.
EV-EBITDA Ratio (TTM)
3 Alternative Energy Stocks Worth to Add in Your Portfolio
Chesapeake Energy: Based in Oklahoma City, OK, Chesapeake is an exploration and production company engaged in the acquisition, exploration and development of properties to produce oil, natural gas and NGLs from underground reservoirs. In November 2021, the company completed the acquisition of Vine, an energy company focused on the development of natural gas properties in the over-pressured stacked Haynesville and Mid-Bossier shale plays in Northwest Louisiana, for $2.2 billion. This buyout is expected to boost the stock’s position in the energy market.
The Zacks Consensus Estimate for Chesapeake’s 2021 earnings has improved 16.1% in the past 60 days while that for 2022 has improved 42% over the same time frame. The company delivered an average earnings surprise of 23.05% in the last four quarters. Chesapeake currently sports a Zacks Rank #1 (Strong Buy).
Price & Consensus: CHK
Evergy: Based in Kansas City, MO, this company provides clean, safe and reliable energy to 1.6 million customers in Kansas and Missouri. In December 2021, Evergy proposed a suite of energy efficiency programs to the Kansas Corporation Commission, which aims to provide Kansas residential and business customers with $42 million in anticipated net bill savings. The proposal will also offer $13 million in enhanced assistance for low-income and rural customers. Such proposals, if approved, will benefit Evergy’s existing customers along with attracting new customers.
The Zacks Consensus Estimate for Evergy’s 2021 earnings has improved 3.9% in the past 60 days and indicates a year-over-year improvement of 11.9%. The company delivered an average earnings surprise of 22.44% in the last four quarters. Evergy currently carries a Zacks Rank #2 (Buy).
Price & Consensus: EVRG
Ameresco: Based in Farmingham, MA, is a leading renewable energy asset developer, owner and operator. Its comprehensive portfolio includes energy efficiency, infrastructure upgrades, asset sustainability and renewable energy solutions. Earlier in December, the company announced its partnership with Merthyr Tydfil Council on an energy conservation project, a deal projected to expand Ameresco’s presence in the United Kingdom. Such partnerships are favorable for expanding this stock’s global footprint.
The Zacks Consensus Estimate for Ameresco’s 2021 earnings has moved up 11.7% in the past 60 days while that for 2022 has risen 16.6%. The company delivered an average earnings surprise of 64.51% in the last four quarters. Ameresco currently holds a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: AMRC