For investors looking for income and growth options in the green energy industry, few stocks stand out like Brookfield Renewable Partners (NYSE:BEPC).
This green utility company offers a high dividend and exposure to the rapidly growing renewable energy market.
BEP is a publicly traded limited partnership that owns and operates a large portfolio of renewable energy resources. These include wind and solar farms, hydroelectric dams and pumped energy storage facilities. BEP currently has facilities on four continents, giving it a strong international presence.
BEP Revenue, Earnings and Growth
In the most recent quarter, BEP actually missed earnings, reporting a loss of $0.03 per share against an expectation of -$0.01. Revenue, however, was far more favorable.
The company reported $1.27 billion in total revenues for the quarter, beating estimates by nearly $130 million. This represented revenue growth of 15.69 percent year-over-year.
Another favorable growth metric comes in the form of BEP’s cash flow. In the most recent quarter, the company reported year-over-year operating cash flow growth of 38.08 percent.
Free cash flow is expected to grow by 26.92 percent over the next two fiscal years, potentially opening more room for investment or additional distributions to shareholders.
Over the next 3-5 years, BEP’s earnings are expected to improve steadily. The current long-term EPS growth projection for the company is 9 percent, a rate that should prove achievable as long as no major negative surprises occur. While not massive, this growth rate would allow BEP to achieve stable profitability and likely result in substantially higher share prices.
Perhaps the most appealing aspect of BEP for many investors is its high dividend yield. At present, the stock yields 3.19 percent and pays $1.28 per share annually.
The distribution has maintained a decent growth rate over time, increasing at annualized compounded rates of 5.10 percent and 8.94 percent over the last 5 and 10 years, respectively.
Target Price and Valuation
Over the next 12 months, analysts expect BEP to remain more or less flat in terms of share price. The median target price for BEP is $42, a gain of just 5.5 percent from the current trading price of $39.80. It should be remembered, though, that any gains will be supplemented by the higher-than-average dividend BEP offers.
Brookfield Renewable Partners presents a bit of a mixed case in terms of value. Due to the company’s current negative earnings, the standard price-to-earnings ratio is of little use here.
BEP trades at 2.48 times sales and 7.73 times cash flow, both of which are reasonable metrics. The real surprise, however, is in the stock’s price-to-book value.
At present, BEP trades at half of its book value. When considered in light of its growth prospects, this actually suggests that BEP could be a good value, even though it doesn’t have positive earnings to back up its valuation.
Brookfield Renewable Partners Risks
The most obvious risk for investors in BEP is the fact that the company has been steadily losing money over the past few years.
The last quarter in which BEP reported positive earnings was Q1 of 2020. While the company appears to be nearing profitability again, it’s far from certain that BEP will regain reliable positive earnings this year or next.
BEP’s future growth is also heavily reliant on borrowed money. As the company builds new renewable energy assets, it will require financing to fund its projects. In today’s environment of rapidly rising interest rates, these debts will be far more costly than they would have been a few years ago.
The amount of impact this will have on BEP will largely depend on how high interest rates eventually go, but investors should assume that the effects of higher rates could be substantial.
Is BEP a Buy?
While the stock is certainly a mixed bag because of its negative earnings, BEP has quite a lot going for it.
Strong revenue and cash flow growth suggest that the underlying business is performing well, even if the company is struggling to generate profits at the moment.
Even more than the current business, though, investors should be encouraged by BEP’s future prospects.
As a leading renewable energy utility company, BEP is in a very good position to take advantage of commitments by several major countries to reduce carbon emissions.
Management is clearly planning to meet higher green energy needs, as projects currently under development will more than triple its existing capacity.
Given BEP’s existing international footprint, it’s likely that the company will prosper in multiple markets as more countries invest in greener power sources.
BEP Stock Forecast
Due to its growth prospects, BEP combines attractive aspects of traditional utilities and high-growth green energy technology companies.
Investors can expect to receive dividends that are similar to legacy utility companies. As green energy projects provide more of the world’s power, though, BEP could see marked increases in its share price. Over time, the combined effects of these forces could allow BEP to generate outsized returns for shareholders.
It should be clearly noted, however, that these benefits don’t come without risks. Looking at cash flows alone, the fair market value for Brookfield is $34.72 per share.
Ongoing losses and rising interest rates are both causes for concern that investors should take into account before purchasing BEP.
It’s also important to note that BEP isn’t expected to perform particularly well this year, meaning investors should be prepared to hold for the long term to realize the potential gains on this stock.
If earnings slip back toward more negative territory, investors could also have longer than expected to wait for their returns.
BEP Buy or Sell?
Ultimately, BEP could be a good choice for buy-and-hold investors who are looking for a strong play on renewable energy.
Brookfield offers good long-term growth prospects and a solid dividend to reward shareholders on a shorter time horizon.
Once more of the projects that are currently in development are completed, investors could also see steady increases to this dividend.
As a result, BEP may be a good stock to consider if you’re looking to add income-generating assets to your portfolio.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.