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3 Alternative Energy Stocks to Watch Amid Insufficient Hydrogen Funding
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Per the American Clean Power Association, the U.S. offshore wind market boasts a rapidly growing pipeline of projects across 32 leases, totaling 51,377 MW of expected capacity. This should bolster alternative energy stocks’ prospects. However, the United States still lags its Asia and Europe counterparts when it comes to government funding for the adoption of hydrogen in electricity generation. Nevertheless, the electric vehicle (EV) market boom has been a key growth catalyst for the alternative energy industry. The forerunners in the U.S. alternative energy industry are Vestas Wind Systems (VWDRY - Free Report) , Clearway Energy (CWEN - Free Report) and Bloom Energy (BE - 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 American Clean Power Association, as of Mar 31, 2023, more than $150 billion in capital investment was announced for utility-scale clean energy projects and manufacturing facilities since federal incentives were signed into law last August.
3 Trends Shaping the Future of the Alternative Energy Industry
Wind Energy – A Key Growth Catalyst: Among alternative energy sources, wind energy has been making noticeable progress in the United States. The American Clean Power Association released a comprehensive report in May 2023 on the U.S. offshore wind market, revealing a rapidly growing pipeline of projects across 32 leases totaling 51,377 MW of expected capacity. These projects will generate enough electricity to power the equivalent of more than 20 million homes. Moreover, per EIA’s latest short-term energy outlook report, electricity produced from renewable sources is projected to rise from 22% of the total generation in 2022 to 23% in 2023 and 26% in 2024. These gains will be partly driven by the low operating costs that renewable sources like wind offers. This reflects a solid opportunity for the U.S. wind market at present, which, in turn, should boost the overall expansion of the alternative energy industry.
Persistent Lag in H2 Investment: 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 the major oil companies, automakers, hydrogen producers and fuel cell manufacturers, and released by Greentech Media in October 2020. However, the Biden-Harris Administration, through the U.S. Department of Energy, announced in December 2022 its intent to issue $750 million in funding from President Biden’s Bipartisan Infrastructure Law to dramatically reduce the cost of clean-hydrogen technologies. This, although higher than the prior plan to spend $28 million in federal funding for research and development, and front-end engineering design projects, remains much lower than the amount invested by its Asia and Europe counterparts.
EV Market Boom to Boost Clean Energy: With enhanced environmental awareness, more individuals are choosing to switch from gasoline-powered vehicles to 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 carpool 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 bolsters the prospects of clean energy stocks, which offer 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 #202, which places it in the bottom 20% 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 bleak 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.
The industry’s position in the bottom 50% of the Zacks-ranked industries is due to a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have lost confidence in this group’s earnings growth potential over the past few months. The industry’s earnings estimates for the current fiscal year have moved down 13% to $1.43 since Feb 28.
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 and its sector over the past year. The stocks in this industry have collectively lost 9.4%, while the Oils-Energy Sector has risen 2%. The Zacks S&P 500 composite has gained 5.1% 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 6.86 compared with the S&P 500’s 12.25 and the sector’s 2.76.
Over the last five years, the industry has traded as high as 6.86X, as low as 6.74X, and at the median of 9.30X, as the charts show below.
EV-EBITDA Ratio (TTM)
3 Alternative Energy Stocks to Watch
Vestas Wind Systems: Based in Aarhus, Denmark, the company is engaged in the development, manufacturing, sale, and maintenance of wind technology. In May 2023, Vestas Wind Systems announced its interim financial report for the first quarter of 2023. In the first quarter of 2023, Vestas recorded a year-over-year improvement of 14% in revenues.
Clearway Energy: Based in San Francisco, CA, this company owns and operates a diversified portfolio of contracted renewable and conventional generation, along with thermal infrastructure assets, in the United States. In April 2023, Clearway Energy Group announced that it closed financing on two utility-scale solar and storage projects located in Riverside County, CA, on U.S. Bureau of Land Management land. The Victory Pass and Arica solar projects will generate 463 MW of combined clean energy capacity and 186 MW of battery storage, which is enough electricity to power roughly 132,000 homes annually.
The Zacks Consensus Estimate for Clearway Energy’s 2023 sales implies an improvement of 18.3% from the 2022 reported figure. The company delivered an earnings surprise of 100% in the last reported quarter. CWEN currently has a Zacks Rank #3 (Hold).
Price & Consensus: CWEN
Bloom Energy: Based in San Jose, CA, the company supplies renewable electricity to the residential, commercial and industrial sectors. In May 2023, Bloom Energy announced its first-quarter 2023 results. Notably, BE’s total revenues for the first quarter grew 37% from the first quarter of 2022, driven by continued growth in Product and Service revenues, and supported an improvement in the operating margin of more than five percentage points.
The Zacks Consensus Estimate for Bloom Energy’s 2023 sales suggests an improvement of 22% from the 2022 reported figure. The stock boasts a long-term earnings growth rate of 25%. Bloom Energy currently carries a Zacks Rank #3.
Price & Consensus: BE
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3 Alternative Energy Stocks to Watch Amid Insufficient Hydrogen Funding
Per the American Clean Power Association, the U.S. offshore wind market boasts a rapidly growing pipeline of projects across 32 leases, totaling 51,377 MW of expected capacity. This should bolster alternative energy stocks’ prospects. However, the United States still lags its Asia and Europe counterparts when it comes to government funding for the adoption of hydrogen in electricity generation. Nevertheless, the electric vehicle (EV) market boom has been a key growth catalyst for the alternative energy industry. The forerunners in the U.S. alternative energy industry are Vestas Wind Systems (VWDRY - Free Report) , Clearway Energy (CWEN - Free Report) and Bloom Energy (BE - 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 American Clean Power Association, as of Mar 31, 2023, more than $150 billion in capital investment was announced for utility-scale clean energy projects and manufacturing facilities since federal incentives were signed into law last August.
3 Trends Shaping the Future of the Alternative Energy Industry
Wind Energy – A Key Growth Catalyst: Among alternative energy sources, wind energy has been making noticeable progress in the United States. The American Clean Power Association released a comprehensive report in May 2023 on the U.S. offshore wind market, revealing a rapidly growing pipeline of projects across 32 leases totaling 51,377 MW of expected capacity. These projects will generate enough electricity to power the equivalent of more than 20 million homes. Moreover, per EIA’s latest short-term energy outlook report, electricity produced from renewable sources is projected to rise from 22% of the total generation in 2022 to 23% in 2023 and 26% in 2024. These gains will be partly driven by the low operating costs that renewable sources like wind offers. This reflects a solid opportunity for the U.S. wind market at present, which, in turn, should boost the overall expansion of the alternative energy industry.
Persistent Lag in H2 Investment: 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 the major oil companies, automakers, hydrogen producers and fuel cell manufacturers, and released by Greentech Media in October 2020. However, the Biden-Harris Administration, through the U.S. Department of Energy, announced in December 2022 its intent to issue $750 million in funding from President Biden’s Bipartisan Infrastructure Law to dramatically reduce the cost of clean-hydrogen technologies. This, although higher than the prior plan to spend $28 million in federal funding for research and development, and front-end engineering design projects, remains much lower than the amount invested by its Asia and Europe counterparts.
EV Market Boom to Boost Clean Energy: With enhanced environmental awareness, more individuals are choosing to switch from gasoline-powered vehicles to 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 carpool 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 bolsters the prospects of clean energy stocks, which offer 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 #202, which places it in the bottom 20% 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 bleak 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.
The industry’s position in the bottom 50% of the Zacks-ranked industries is due to a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have lost confidence in this group’s earnings growth potential over the past few months. The industry’s earnings estimates for the current fiscal year have moved down 13% to $1.43 since Feb 28.
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 and its sector over the past year. The stocks in this industry have collectively lost 9.4%, while the Oils-Energy Sector has risen 2%. The Zacks S&P 500 composite has gained 5.1% in the same timeframe.
One-Year Price Performance
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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 6.86 compared with the S&P 500’s 12.25 and the sector’s 2.76.
Over the last five years, the industry has traded as high as 6.86X, as low as 6.74X, and at the median of 9.30X, as the charts show below.
EV-EBITDA Ratio (TTM)
3 Alternative Energy Stocks to Watch
Vestas Wind Systems: Based in Aarhus, Denmark, the company is engaged in the development, manufacturing, sale, and maintenance of wind technology. In May 2023, Vestas Wind Systems announced its interim financial report for the first quarter of 2023. In the first quarter of 2023, Vestas recorded a year-over-year improvement of 14% in revenues.
The Zacks Consensus Estimate for VWDRY’s 2023 sales implies an improvement of 6.6% from the 2022 reported figure. VWDRY currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: VWDRY
Clearway Energy: Based in San Francisco, CA, this company owns and operates a diversified portfolio of contracted renewable and conventional generation, along with thermal infrastructure assets, in the United States. In April 2023, Clearway Energy Group announced that it closed financing on two utility-scale solar and storage projects located in Riverside County, CA, on U.S. Bureau of Land Management land. The Victory Pass and Arica solar projects will generate 463 MW of combined clean energy capacity and 186 MW of battery storage, which is enough electricity to power roughly 132,000 homes annually.
The Zacks Consensus Estimate for Clearway Energy’s 2023 sales implies an improvement of 18.3% from the 2022 reported figure. The company delivered an earnings surprise of 100% in the last reported quarter. CWEN currently has a Zacks Rank #3 (Hold).
Price & Consensus: CWEN
Bloom Energy: Based in San Jose, CA, the company supplies renewable electricity to the residential, commercial and industrial sectors. In May 2023, Bloom Energy announced its first-quarter 2023 results. Notably, BE’s total revenues for the first quarter grew 37% from the first quarter of 2022, driven by continued growth in Product and Service revenues, and supported an improvement in the operating margin of more than five percentage points.
The Zacks Consensus Estimate for Bloom Energy’s 2023 sales suggests an improvement of 22% from the 2022 reported figure. The stock boasts a long-term earnings growth rate of 25%. Bloom Energy currently carries a Zacks Rank #3.
Price & Consensus: BE