Many renewable energy stocks have been trading sideways over the past couple of years. Indeed, that may surprise some investors, considering the initial excitement around this sector and announced government stimulus for green energy. However, the long-term shift towards renewable power is still very much underway as countries aim to reduce carbon emissions and reliance on fossil fuels.
Now, public interest in this sector may have cooled, but investments in wind, solar, and other renewable sources of energy are expected to ramp up again in the coming years. This shift is also being accelerated due to the rising volatility of oil and other raw materials recently.
For investors looking at renewable energy stocks, recent selloffs have already priced in many of the uncertainties facing clean energy companies. With valuations depressed from their highs, now could be an opportune time to take positions in quality names poised to benefit from the inevitable continued growth in this sector. Here are three companies on my watch list now.
Enphase Energy (ENPH)
Enphase Energy (NASDAQ:ENPH) is a leading supplier of microinverters and solar energy management systems for the residential and commercial solar markets. Despite some recent disappointments with its guidance, Enphase still looks poised to be a long-term winner in the solar space.
In its latest quarterly results, Enphase beat on the bottom line and slightly missed revenue expectations. Additionally, the company put forward a weaker-than-expected outlook for the current quarter, with revenue guidance of $550 million – $600 million versus consensus estimates of around $746 million. The company cited a need to work through excess channel inventory, especially in the U.S. residential market. Typical summer seasonality in Europe was also cited as a reason for this sub-par guidance.
This near-term guidance certainly disappointed investors. Accordingly, ENPH stock tumbled, as many would expect. That said, Enphase still has a lot going for it over the long run. For one, the company continues expanding globally, especially in Europe, where growth remains robust. Enphase grew European revenue by 25% sequentially last quarter.
Additionally, analysts remain bullish on Enphase over the long run. The average analyst price target of $199 represents 55.3% upside over the next 12 months. Revenue growth is expected to re-accelerate after this year, with 14.1% growth expected in 2023, rising to 27% by 2025. Earnings per share are also forecast to nearly double as early as 2025.
While near-term headwinds have impacted the stock, Enphase still looks poised to deliver market-leading growth in the solar space over the coming years. For investors with a medium- to long-term investing horizon, I believe any near-term weakness in the stock provides an attractive buying opportunity.
SolarEdge (SEDG)
SolarEdge (NASDAQ:SEDG) is another leading supplier of solar inverters, power optimizers, and energy management systems. While the company has faced some recent headwinds (especially in the U.S. market), analysts remain upbeat on SolarEdge’s growth trajectory. That’s mostly due to the company’s strength in Europe and its product innovation.
SolarEdge delivered quarterly revenue of $991.3 million in its latest quarter, up 36.3% year-over-year. However, its guidance for next quarter came in weaker than expected at $880 million – $920 million due to excess inventory needing to be worked through, especially in Europe and the U.S. SolarEdge saw U.S. residential market revenue decrease 23% quarter-over-quarter as higher interest rates have softened demand. The company also cited excess inventory built up by European distributors during the component shortage period. This build up will likely take a couple of quarters to work through.
However, these regional headwinds appear manageable given SolarEdge’s diversified global revenue base. In fact, SolarEdge just delivered 57% growth on a quarter-over-quarter basis (in terms of megawatts) in residential shipments in Europe, along with record revenues in several countries like Germany. Commercial megawatt shipments were also up 50% in Europe.
SolarEdge sees significant upside from continued product innovation. This includes its new power optimizers and inverters tailored for the growing European commercial market. The company is also rolling out smart EV chargers and software platforms to help installers design solar + storage systems. These innovations should help SolarEdge maintain differentiation versus competitors.
While U.S. and European inventory issues may persist, SolarEdge is positioned to deliver standout growth in the solar space, given its product innovation and diverse geographic exposure.
Northland Power (NPIFF)
Northland Power (OTCMKTS:NPIFF) operates a global renewable energy production facility portfolio, including offshore wind, onshore wind, solar PV, and efficient natural gas. While the company’s growth has been muted lately, its stock looks attractively-valued for long-term investors.
In the first half of 2023, Northland delivered adjusted EBITDA of $232 million, down from $335 million a year earlier. These underwhelming results were primarily due to less favorable macro conditions compared to last year. The company also had to exit the Nordsee One offshore wind project in Germany after project economics deteriorated amidst rising interest rates and supply chain issues.
However, Northland did take a 24.5% stake in a 2.3 GW project in Ireland, and has a couple of projects under construction that should start contributing in 2025/2026. The company also has further wind projects that can drive growth post-2025. Besides offshore wind, Northland is also expanding into onshore solar, wind, and battery storage projects in North America and Europe.
Still, despite the growth potential from this extensive development pipeline, Northland shares have taken a beating, down 44% over the past year. This has left shares looking attractively priced, trading at just 14-times 2023 earnings.
The average analyst price target of $27 suggests nearly 45% upside potential is possible over the next 12 months. While the path there may be choppy, Northland’s attractive valuation and long-term growth prospects make it a compelling renewable energy pick for patient investors. The stock’s 5%+ dividend yield also helps compensate investors for waiting out any near-term headwinds.
On the date of publication, Omor Ibne Ehsan 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.
