A sharp boost in government spending for infrastructure will only go so far. Since late last year, clean energy stocks bubbled higher and then lost steam. Speculators took advantage of the buying euphoria to trade the rip and sell on the dip. After the Texas Winter storm of 2021, investors realized that utility companies and battery firms are a critical component of the new energy puzzle. That’s when attention shifted towards battery stocks.
The infrastructure plan for renewable energy will require investments in electrical utilities, solar energy, the power grid, electric vehicles (EVs) and batteries. Investors have seven battery stocks to consider today. They are:
- Albemarle (NYSE:ALB)
- Energizer Holdings (NYSE:ENR)
- Johnson Controls (NYSE:JCI)
- NextEra Energy (NYSE:NEE)
- Nio (NYSE:NIO)
- Sociedad Quimica Y Minera (NYSE:SQM)
- Tesla (NASDAQ:TSLA)
In the chart below, the quality score varies within a narrow range. All of the battery stocks have a good balance sheet and reasonable debt-to-equity metrics. Conversely, the overall score against its respective peers is low. This suggests that conservative investors may want to watch the stock instead of immediately buying. For example, JCI and ALB stock are trading at close to 52-week highs.
Valuations for those firms are fair but could be better. A general pull-back in markets may create a better entry price. As new energy demands intensify, those stocks will outperform their peers.
As shown above, NIO and SQM stock have the lowest overall score. ALB and NEE stock score the best on quality.
Battery Stocks to Buy: Albemarle (ALB)
In the first quarter, Albemarle posted net income falling from $1.01 a share last year to 84 cents a share. It completed a $1.5 billion public equity offering during the quarter. This will reduce its debt and improve its financial flexibility to execute its business strategy.
Lithium, a key material for battery, contributed positively to Albemarle’s 17% year-over-year (YoY) increase in adjusted EBITDA. Chief Executive Officer Kent Masters said, “we continue to focus on execution of our growth strategy and are in the final stages of two lithium projects which will double our conversion capacity to approximately 175,000 metric tons.”
The company forecast diluted EPS in the range of $3.25-$3.65 for the fiscal year 2021. It said its Catalysts business is lower, while its Bromine business is unchanged. On its first-quarter 2021 presentation, Albemarle said (on slide 7) that favorable regulatory environment shifts and recent OEM announcements will lift lithium demand fundamentals. For example, Tesla, Nio, and Hyundai (OTCMKTS:HYMTF) are some of the automotive firms building upon their EV business through battery production or electrification.
Energizer Holdings (ENR)
Known for its batteries, Energizer posted a net sales increase of 16.7% YoY to $685.1 million. The quarterly earnings loss sent ENR stock lower, despite the increased guidance.
ENR increased its full-year outlook. It forecasted net sales growing 5% to 7%. It will post an adjusted EPS in the range of $3.30 to $3.50. The battery firm has some weak key metrics to work through. Per slide 5 in the Q2 2021 presentation, adjusted free cash flow is down on a VAT refund. Still, the inventory investments are servicing higher demand. Net debt of $3.2 billion is a 4.8 times net debt to credit ratio. So long as interest rates do not rise, the debt should not worry shareholders.
Consumer usage of more devices is driving battery demand. Chief Executive Officer Mark LaVigne said that households have around 1.5 devices more per household than they had previously. This suggests that battery demand will continue to climb. For example, at the end of February, Energizer demand rose 20%, compared to 14% globally.
On Wall Street, the average price target is $55.00 (per Tipranks).
Battery Stocks to Buy: Johnson Controls (JCI)
Johnson Controls is positioning its business to support the economy’s decarbonization and capture. It sees this opportunity as once-in-a-generation. The firm sold its automotive battery business in 2019, so investors may track the Clarios initial public offering.
In the interim, a strong performance for the Clarios IPO may lift awareness for JCI stock. For example, JCI’s district heating unit helps customers lower energy costs and achieve their environmental goals. CEO George Oliver said on a conference call that customers are utilizing JCI’s OpenBlue as a service. This helps them improve a building’s energy and carbon profile without managing the process.
Johnson takes the extra step of increasing building energy efficiency through a survey of a customer site. Its staff identifies opportunities for reducing energy usage. Oliver said, “our opportunity here is to be able to create an outcome, energy savings, higher operations.”
On Wall Street, the average price target on JCI stock is around $70.00 on Tipranks.
NextEra Energy (NEE)
NextEra Energy’s inability to collect $180 million in revenue following the Texas energy crisis hurt its stock recently. Still, it posted strong first-quarter 2021 financial results.
NextEra posted net income from FPL, or Florida Power & Light, of $720 million, or 37 cents a share. This is up from $642 million, or 33 cents a share, last year. FPL’s capital investments include its 409-megawatt (MW) Manatee Energy Storage Center, which will be the world’s largest integrated solar-powered battery system.
NextEra Energy Resources added around 1,750 MW to its renewables backlog. The unit has 190 MW of solar projects pared with around 100 MW of four-hour battery storage capacity.
On Wall Street, the average price target is $86.71, per Tipranks. Conversely, NEE stock has downside risks if it cannot grow its revenue starting this year. A 5-year discounted cash flow EBITDA Exit model uses an EBITDA Exit multiple to calculate Terminal Value after five years.
|Terminal EBITDA Multiple||12.0x – 10.0x||11.1x|
|Fair Value||$96.27 – $57.05||$63.51|
In the above model, investors may raise the terminal EBITDA multiple if they are more bullish than this author. The company needs to collect revenue from Texas and post flat or growing revenue growth YoY in the next quarter.
Battery Stocks to Buy: Nio (NIO)
Nio figured out how to overcome consumer EV range anxiety. It deployed a battery swapping solution and charging network. Plus, it invested in its off-line service channels.
In the first quarter, Nio posted an EPS loss of 4 cents a share (non-GAAP) and a 48 cent GAAP EPS loss. Revenue soared by almost five-fold (up 481.8% YoY) to $1.22 billion. Deliveries topped 20,060 in Q1. Its EC6 model accounted for 7,456 deliveries. In Q2 2021, the company forecast deliveries in the range of 21,000 to 22,000. This is up between 103% and 113% Y/Y.
Nio’s Power Swap Station 2.0 will significantly boost its service capacity to up to 312 swaps a day. Nio shortened the battery swapping time and increased the carrying up to 13 battery packs. Customer additions to the subscription model increase the cash flow predictability quarterly.
After the company launched a 100-kilowatt-hour battery pack, users welcomed it. Over 10,000 users have adapted the battery pack so far. And on April 18, Nio offered a flexible upgrade to this pack.
Sociedad Quimica Y Minera (SQM)
SQM is the world’s largest lithium producer. It recently set a goal of expanding its lithium hydroxide production capacity. It raised $1.1 billion to finance the program, which will take three years.
Johnson Matthey announced a strategic partnership for sustainable battery materials production. On April 19, the firm said it would commercialize eLNO, a portfolio of nickel-rich advanced cathode materials. So, it secured a supply deal for critical raw materials involved in battery materials production. This included an agreement for the supply of lithium hydroxide from SQM.
Robert MacLeod, the CEO of Johnson Matthey, said “The partnership with Finnish Minerals Group, and the long term supply of critical raw materials with Nornickel and SQM, are important milestones on our journey towards developing a sustainable battery materials ecosystem.”
Readers should note that SQM stock gets very little coverage on Wall Street. One analyst rates the stock as a sell, with 2 other analysts giving a buy rating and one analyst neutral on the stock (based on data compiled from Tipranks).
Battery Stocks to Buy: Tesla (TSLA)
Tesla gets most of its attention from either the CEO tweeting about Dogecoin or EV deliveries. Markets rarely talk about Tesla Powerwall.
Powerwall is a system that includes at least one Powerwall and a Tesla Gateway. Customers may store energy for later use with this solution. It does not require solar energy as a source, although through solar, Powerwall gets charged during the day. It stores energy until the home needs it. For example, during a power outage or at night, the home will consume Powerwall’s stored energy.
Without solar, Powerwall charges when electricity rates are lower. When rates are high, the home will draw electricity from it.
Tesla noted the high demand for its Powerwall system in its last quarter. As a result, it will only deliver those products to solar customers. Investors should assume that as battery production increases, the company will ship to non-solar customers, too.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.