Clean energy stocks are still on the right side of a multi-year secular tailwind. Indeed, oil and gas stocks have been better performers over the past year as the formerly-hot green energy plays shuffled into the backseat. Still, as dirty energy looks to run its course, we may see many renewable energy companies picking up traction again.
Undoubtedly, hype and excitement powered many clean energy stocks to unsustainable heights in 2021. With the tides now turned and more investors increasingly mindful of valuation, top renewable energy firms seem worthy of another look. At this juncture, plenty of names stand out as potential winners as they continue to invest for the long term.
Therefore, let’s take a look at two Strong-Buy clean-energy stocks — NEE and NPIFF — that still possess attractive five-year outlooks.
NextEra Energy (NYSE:NEE)
NextEra Energy is a utility giant with a $149 billion market cap. The firm is becoming cleaner and greener by the year, with one of the most intriguing renewable energy portfolios out there. Its wind and solar business, in particular, is a reason to like the name as the waters get rougher. However, though I like the company, I can’t say I’m a huge fan of its valuation. As such, I am neutral on NEE.
At writing, the stock is down just shy of 20% from its all-time high. The latest skid was courtesy of a Bank of America (NYSE:BAC) price target and recommendation downgrade (from Buy to Hold, with a target slashed from $94 to $80). The bank cites regulatory uncertainty in Florida as one of the reasons behind its downgrade and is looking for the stock to stay stuck in its long-term consolidation channel.
Despite the Flordia fog uncertainty, management appears to have a bright future with solar projects (forgive the pun), which could comprise around 50% of projects through 2026. Further, the firm expects 6%-8% annual growth through 2026. If all goes according to plan, I’d be unshocked if NextEra can extend its growth streak over the next few years.
Regarding its expensive valuation, the stock currently trades at 36.2 times trailing earnings, well above the electric American utility industry average of around 23.7 times. The low beta of 0.46 — implying less volatility than the S&P 500 (SPX) — and healthy 2.25% dividend yield are great “sweeteners.” However, I do think there are more value-rich plays in the green-energy space.
What is the Price Target for NEE Stock?
Wall Street is incredibly bullish, with a “Strong Buy” consensus rating comprised of 12 unanimous Buy ratings. The average NEE stock price target of $95.50 implies a solid gain of 28% from its current price.
Northland Power (TSE:NPI) is a well-run Canadian renewable energy firm that’s a powerhouse when it comes to wind power. Its offshore wind development could help power solid gains for investors over the long haul. The firm has a guide for 10% in adjusted EBITDA for the full year. Looking further out, I expect NPI could maintain growth in such a range, even as the bar is lowered on industry growth rates as a result of high rates and other headwinds affecting renewable power plays.
With a 12.7 times trailing earnings multiple (that’s considerably lower than the Canadian electric utility industry average of 26.8 times), a 3.4% dividend yield, and a growth pipeline that’s still strong despite recent headwinds, I remain bullish on the firm’s long-term prospects.
Nearer term, however, the business has felt more headwinds than tailwinds (forgive the pun), with the toxic mix of inflation (higher input costs) and higher interest rates (increasing the costs of borrowing).
The macro pressure has worked its way into the share price, with NPI stock (the Canadian shares) tumbling from just north of C$50 per share to as low as C$35 and change. At writing, shares are off more than 28% from peak levels.
In the meantime, Northland may need to take steps to improve its financial wiggle room amid macro-related pressures. Northland is considering divesting its stake in the Hai Long offshore wind project to shore up cash for other works in the pipeline.
Sure, Northland is a lesser-known renewable play, but one that Wall Street expects great things from. Personally, I think the risk/reward is among the most compelling of the clean-energy plays, making it worth traveling north of the border (to the TSX) for.
What is the Price Target for NPI Stock?
Northland has not been immune to the macro headwinds. Still, the firm has done a respectable job of managing through the chaos. Wall Street is incredibly bullish, with a “Strong Buy” consensus rating comprised of six Buys and one Hold. The average NPI stock price target of $46.50 implies a solid gain of 30.1% from its current price.
NextEra Energy and Northland Power are very intriguing plays to bet on the clean energy shift while their share prices are down and out. Between the two, Wall Street sees more gain to be had in Northland Power stock.
NextEra is a more mature play that has bright prospects with its solar projects, while Northland’s wind projects should benefit greatly over the next five years as macro headwinds fade.