The US electric grid is undergoing a major transformation and renewable energy has become increasingly widely adopted over the past decade.
Goldman Sachs analyst Carly Davenport says adoption will continue at a brisk pace. Looking ahead, Davenport estimates that by 2032, more than 45% of US electricity generation capacity will come from renewable sources and 6% from coal. This compares to a mix of 30%/16% today and 17%/27% in 2012, making the ongoing shift very clear.
With this as a backdrop, boosted by the Inflation Reduction Act, and changes in the mix of electricity generation and as the energy transition progresses, Davenport believes that utilities will be “accommodating and related to this transition.” are uniquely positioned to address the challenges that create a cleaner power grid while maintaining reliability and customer affordability.
“This transition will require a significant amount of capital investment,” the analyst continued, “which we believe will contribute to attractive earnings and rate base growth in the years ahead.”
And investors can clearly take advantage of this development as well. Investors stand to access an “attractive investment opportunity set,” with topics such as clean technology, nuclear power, LNG (liquefied natural gas) project additions, and “transmission build out” coming to the fore.
Davenport has compiled a list of stocks that he and his team call “decarbonization enablers” that are well-positioned to take advantage of the trend — and he names three with double-digit growth in the coming months. She watches We ran these picks through the TipRanks database to get a complete sense of their prospects. Let’s see the result.
NextEra Energy, Inc. (NEE)
We’ll start with NextEra Energy, a Florida-based electric utility firm that, with a $150 billion market cap, is the largest company in the U.S. One of the largest utility holding firms in the utility landscape. NextEra’s main subsidiary is Florida Power & Light (FPL), which has more than 5.8 million customer accounts and provides electricity to more than 12 million people throughout Florida. The company generates electricity at seven utility-grade nuclear generating plants in Florida, making it a leading provider of zero-emission power.
NextEra doesn’t just rely on nuclear power for clean energy. The company is also foraying into the hydrogen segment of the energy industry. In April this year, the company announced an understanding between its renewable energy subsidiary NextEra Energy Resources and CF Industries, a major ammonia producer, for the development of a hydrogen project at the CF Industries facility in Oklahoma.
At the end of Q1, NextEra owned and operated approximately 4,600 MW of solar power generation capacity, including a total of 970 MW of solar capacity brought online during the quarter. This total makes NextEra the largest utility provider of solar power in the US. The company has over 2,000 MW of renewable energy and storage projects in its work backlog.
This company has a history of beating earnings expectations and has done so consistently over the years, as it did in the last reported quarter — for 1Q23. Environment. EPS rose to $0.84 from $0.74 in the same period a year ago, which in turn beat forecasts by $0.11. Similarly, on the top-line, revenue grew 132.5% year-over-year to $6.72 billion, which was $1.5 billion above estimates.
Turning to Carly Davenport of Goldman Sachs, we find that she has a Buy rating on NEE shares with a $90 price target, which implies one-year gains of ~22%. (To see Davenport’s track record, Click here,
In Davenport’s view, the company’s ability to grow earnings while expanding renewable generation capacity is a key point. She writes: “Three key factors underpin our Buy rating: renewable growth, a positive regulatory environment and a long track record of execution at FPL, and above average EPS growth with discounted valuations relative to history. The utility views Florida Power & Light (FPL) as a premium regulated utility with a long runway for growth in a positive regulatory backdrop… NE shares have underperformed XLU by ~5% YTD, which We believe that offers an attractive entry point for investors.
Overall, NEE has a Strong Buy from The Street’s analyst consensus based on 12 recent reviews including 9 Buys and 3 Holds. Shares are trading for $73.98 and have an average price target of $89.45, suggesting ~21% gains over the one-year time frame. (Look NEE Stock Forecast,
Sempra Energy (SRE)
Sempra Energy is a San Diego-based energy firm working to deliver power – electricity and natural gas – to approximately 40 million customers in California, Texas and Mexico. Sempra is deeply involved in the shift towards clean energy technologies, including renewables, and is a leading supplier and exporter of liquefied natural gas (LNG), which generates significantly lower carbon emissions than other fossil fuels.
Sempra’s LNG operations are extensive. The company currently has a majority ownership stake in a 12 million tonnes per annum (Mtpa) export facility, Cameron LNG, located in Hackberry, Louisiana, on the Gulf Coast. In line with the firm’s home base in San Diego, Sempra is also working to develop an LNG export terminal in the Pacific at Energia Costa Azul, northwest of Mexico’s Baja California peninsula. This facility has the potential to reduce LNG export transit time in Asia from 21 days to 11 days.
Natural gas is big business, and Sempra generated $6.56 billion in total revenue during the first quarter of this year. That was up 71.7% from the previous year, and beat analysts’ forecasts by more than $2.5 billion. The company’s bottom line showed solid gains; Adjusted net income in 1Q23 came in at $2.92 per share – 15 cents better than expected.
Sempra is leveraging its strong financial base to expand its infrastructure business. As mentioned, Sempra is building an LNG export facility in northwestern Mexico – the company is working on additional LNG export terminals in Texas to meet global demand for LNG.
In Carly Davenport’s opinion, infrastructure expansion and further building of LNG export capabilities are key points for investors. Goldman analysts write about Sempra: “SRE has a significant project pipeline for LNG in its Sempra infrastructure business (SIP), with 62 MTPA of total capacity online, if all proposed projects are successful. SRE owns a portion of the capacity. While the projects are not likely to come online until late 2020 at the earliest, we expect progress towards reaching FID and starting construction to be a positive catalyst for SRE on the way Will serve as … We view SRE’s business mix favorably and see the SIP as a unique opportunity to gain exposure to LNG in the utility sector.
Davenport proceeded to rate Sempra’s stock with a $178 price target, which shows confidence in 21% upside in the coming year.
Overall, Sempra has a Moderate By consensus rating from the Street, with 6 recent analyst reviews on file, which include 4 Buy and 2 Hold. Shares are selling for $147.17, and their $172.17 average price target suggests 17% gains over the next 12 months. (Look Sempra Stock Forecast,
Excel Energy (XEL)
Last on our Goldman-backed energy list is Xcel Energy. The company is known for its commitment to clean, renewable electricity generation, and boasts an electricity generation portfolio that includes wind, solar, and hydroelectric power, complemented by natural gas, nuclear, and biomass generation.
Power generation is useless without transmission, and Xcel has an extensive network of power transmission assets. It includes more than 1,200 substations and more than 20,000 miles of transmission lines, capable of serving 22,000 MW of customer loads. Xcel is working to expand this network, which is currently active in 10 states across two major regions of the country. Xcel has transmission networks in the Texas–New Mexico–Colorado–Kansas–Oklahoma as well as the Northern Plains and Great Lakes states of North and South Dakota, Minnesota, Wisconsin, and Michigan.
In addition to its power generation and transmission activity, Xcel is promoting clean energy use and zero-emission vehicles. The company is involved in developing electric vehicle (EV) technology, and provides subscription services for renewable energy resources, including solar panel installation, to customers.
On the financial side, Xcel’s 1Q23 results showed $4.08 billion in total revenue, a solid result that grew 8.8% year-over-year and beat analyst estimates by $320 million. bottom line adj. The EPS figure, of 76 cents per share, was up 8.5% y/y, and beat forecasts by 2 cents per share.
For Goldman’s Carly Davenport, there are several reasons to support Xcel. She writes: “The primary drivers of our positive outlook are accelerated coal replacement with regulated renewable energy, rate case activity that can improve earned versus authorized ROE, and taking advantage of the transmission build out opportunity. And Solar sees the resource-rich services sector as a key competitive advantage that enables it to meet its goals.”
Putting some numbers where his mouth is, Davenport gave XEL shares a $75 price target, suggested 18% upside over the next 12 months, and supported his Outperform (ie, Buy) rating. (To see Davenport’s track record, Click here,
Overall, XEL stock has moderate buy, based on 12 reviews with a breakdown of 5 buys and 7 holds. The shares have an average price target of $69.73 and trading price of $63.57, indicating an upside potential of ~10% for the coming year. (Look XEL Stock Forecast,
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Disclaimer: The views expressed in this article are those of select analysts only. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.