The rising interest in carbon capture, utilization and storage (CCUS) technologies and lifting carbon prices has created a viable environment for carbon capture stocks.
CCUS technologies have been around for several decades in the oil and gas industry to enhance oil recovery. Long-term storage of carbon emissions is a relatively new concept that has gained traction in the past few years and will play an important role in meeting net-zero targets by 2050.
These technologies can be applied to heavy industries and dirty power plants, giving large carbon-emitting companies more flexibility to adapt to stricter regulations, without obstructing daily operations.
Nevertheless, most of the players with exposure to CCUS are carbon capture stocks, with limited revenues, liquidity, and investor information. They are prone to high risk, but also promising rewards.
The carbon market has recently underperformed the broader equity market. The KraneShares Global Carbon ETF (NYSEARCA:KRBN), a proxy of the carbon market with exposure to carbon allowances, lost 7.2% year-to-date, whereas the SPDR S&P 500 Trust ETF (NYSEARCA:SPY) decreased only 4.1%.
However, according to IHS Markit, as of Dec. 31 the global price of carbon was $51.45 per ton of CO2, but it is estimated that those prices need to hit $147 per ton to meet the global warming limit, providing a constructive backdrop for carbon capture stocks.
With that in mind, let’s dig into three carbon capture stocks that are set to benefit from rising carbon emission prices:
- Aker Carbon Capture ASA (OTCMKTS:AKCCF)
- FuelCell Energy (NASDAQ:FCEL)
- Delta Cleantech (OTCMKTS:DCTIF)
Carbon Capture Stocks: Aker Carbon Capture ASA (AKCCF)
Aker Carbon Capture is a Norwegian company providing carbon capture technologies. It offers its services to the entire CCUS value chain and serves different industries, including oil and gas, steel and cement.
The performance of AKCCF disappointed shareholders lately, posting a 19.4% loss since the beginning of the year, although it recently combined forces with Microsoft (NASDAQ:MSFT) to pursue innovation efforts and expand opportunities in the CCUS market.
With a market capitalization of $1.5 billion, AKCCF is one of the main carbon capture pure plays. AKCCF delivered top-line growth of 129.7% in 2021 to $41.7 million and analysts expect the rapid growth rate to pursue in 2022, up 133% to $97.16 million.
However, Aker Carbon’s net loss is projected to flatten in the next two years, posting an expected yearly loss of $16.2 million in 2022 and $1.7 million in 2023.
The carbon capture pure player had a comfortable net cash position in 2021 of roughly $150 million, which should be sufficient to pursue business prospects.
With the recent partnerships it has signed, interest for AKCCF will probably rise, but the company trades at overvalued multiples relative to its fundamental picture. Aker Carbon Capture has an estimated 2022 enterprise-value-to-revenue ratio of 14.8 and a forward price-book ratio of 15.8.
FuelCell Energy (FCEL)
FCEL is a worldwide distributor and manufacturer of fuel cells, offering a carbon capture solution called SureSource. Through its molten carbonate fuel cell technology, FCEL sequestrates carbon and greenhouse emissions from existing coal or gas-fired power plants. FuelCell’s technology enables it to achieve a 90% carbon capture rate for a marginal increase in power operating costs.
Since the beginning of the year, FCEL stock has outperformed the broader market, gaining 20% year-to-date to $6.28 per share.
In the past two quarterly releases, FuelCell Energy missed analysts’ earnings per share guidance but beat revenue anticipations by $5.53 million in the first quarter of 2022. The clean-energy stock is not expected to deliver a profit in the next two years, but net sales are projected to nearly double this year to $137 million compared to $69.6 million in 2021.
Despite being unprofitable, this stock with exposure to CCUS technologies has a net cash position of $343 million at the end of 2021 and is expected to reduce free cash flow loss in 2022 to $160 million compared to a massive deficit of $768 million last year.
The stock trades at relatively high valuation metrics, with a forward EV/Revenue of 15.4x and 2022e P/B ratio of 4.32x. However, rising investor interest in carbon capture technologies makes FCEL one of the top players with exposure to the complex.
Carbon Capture Stocks: Delta Cleantech (DCTIF)
DCTIF is a clean energy company based in Canada. Its main operations consist of “carbon dioxide (CO2) capture, decarbonization of energy, solvent & glycol reclamation, blue hydrogen production, and carbon credit aggregation and management.” The company services the CO2 capture market through its Delta Reclaimer purification technology.
Since the beginning of the year, DCTIF shares plunged 65% to 11 cents per share, underperforming significantly the carbon market and posting a ridiculously low market capitalization of $6 million.
The company recently announced that it plans to “… begin the expansion and accelerated growth of Delta’s wholly owned subsidiary, Carbon RX, a carbon credit origination, aggregation, tokenization, and streaming business originally found in 2006 as North American pioneer in the voluntary carbon credit market.“
However, the fundamental picture of Delta Cleantech is in poor condition. For the nine months ending Sept. 30, 2021, DCTIF reported total revenues of $300,000, an operating loss of $1.13 million and a yearly net loss of $1.79 million.
With all that, there is no surprise that the stock has dipped to new all-time lows. Investors looking to enter this carbon capture play should not underestimate the high risks of buying penny stocks.
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On the date of publication, Cristian Docan 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.