For years, skeptics argued that investments in alternative energy -- solar, wind, and geothermal -- were foolish pursuits. Contending that fossil fuels would never yield significant market share to clean energy, for example, cynics recognized traditional power sources as the best energy investments.
The tide, however, has turned. In many markets, clean-energy companies now offer customers solutions that are cost-competitive with traditional power sources. For this reason and others, it's clear that the time has come to take these businesses seriously.
Image source: Getty Images.
Here comes the sun
An industry leader in the production of solar panels, First Solar (FSLR 2.85%) is one clean-energy stock that should be on investors' radars. Unlike most solar panels, which use crystalline silicon technology, First Solar's thin-film panels use cadmium telluride. Founded in 1999, First Solar has proved its resiliency, growing to become one of the few consistently profitable solar-panel manufacturers.
The company faced some headwinds in 2016, as the industry experienced a decline in module average selling prices; consequently, First Solar reported a net loss for the year. Management, however, expects a return to profitability in 2017, guiding for earnings of $1.55 to $2.20 per share. The company's strong balance sheet -- $1.5 billion in cash and $321 million in debt as of Q2 2017 -- will help the company endure future downturns in the market.
| Company | Market Capitalization | FY 2016 Revenue | FY 2016 EBITDA | FY 2016 Free Cash Flow |
|---|---|---|---|---|
| First Solar | $5.1 billion | $3.0 billion | $220 million | ($23 million) |
| General Electric (GE -0.69%) | $217.7 billion | $123.7 billion | $19.1 billion | ($7.4 billion) |
| Vestas Wind Systems ADR (VWDRY -0.48%) | $20.7 billion | $9.63 billion | $1.62 billion | $1.59 billion |
| Ormat Technologies (ORA 3.62%) | $2.8 billion | $663 million | $314 million | $7 million |
| Covanta Holding (CVA) | $1.8 billion | $1.7 billion | $360 million | ($77 million) |
Data source: Morningstar. Revenue Reported in U.S. dollars. Vestas reports revenue in euros; figures represent exchange rate of 1 euro to $0.94.
Gee, it does that, too?
GE may be most recognizable as a household name because of its light bulbs and appliances, but the company is also at the forefront of wind-power solutions. According to a recent Bloomberg New Energy Finance (BNEF) report, for example, GE ranked second among the largest onshore global wind turbine manufacturers in 2016. Strengthening its position as an industry leader, GE recently acquired LM Wind Power, one of the world's largest wind-turbine blade manufacturers, for $1.7 billion. GE's wind-power prowess transcends the manufacturing of turbines. Its Digital Wind Farm solution, powered by the Predix platform, can increase a wind farm's energy production by up to 20%, according to the company.
But there's more than just wind. GE's venture, Current, incorporating the company's work in the Internet of Things, also deals in green energy. According to its website, Current "combines energy efficiency solutions like LED lighting and solar with connected sensors and controls to create intelligent environments that are not only efficient, but deliver additional productivity outcomes." In Q2 2017, GE reported that Current and the lighting segment booked $13 million in operating profit, but there's plenty of market potential. According to Accenture, the Industrial Internet of Things could contribute $14.2 trillion to the global economy by 2030.
One company not to breeze past
Investors seeking a pure play on wind power need to look no further than Vestas Wind Systems, which, according to BNEF, was the largest onshore wind turbine manufacturer in 2016. Looking further back, though, investors will find the company has a proven track record in profiting from the global appetite for wind power. Such a strong record of revenue growth and increased profitability is not very common when it comes to companies dealing in clean energy, so Vestas' accomplishments certainly warrant recognition.
VWDRY Revenue (Annual) data by YCharts.
Looking to increase shareholder value, Vestas intends to repurchase shares equal to about 600 million euros in the remainder of 2017. This comes in addition to the shares valued at 100 million euros that the company bought back in the first quarter; meanwhile, management isn't forsaking its dividend, anchoring its dividend amount to about 25% to 30% of net profit.
An investment to keep you grounded
Shifting focus from solar and wind power, we find another clean-energy opportunity. Branding itself as the only vertically integrated geothermal company, Ormat Technologies has been bringing geothermal solutions to customers for more than 50 years. The company owns and operates assets totaling about 727 MW -- a portfolio with a reach that extends through five countries on three continents.
Ormat has grown its revenue in each consecutive year since 2010, and if the company achieves the midpoint of its guidance, it will do the same -- about 4% -- in fiscal 2017. The company has also reported steady adjusted EBITDA growth. In fact, from fiscal 2012 through 2016, adjusted EBITDA has risen 73%. Should the company achieve the midpoint of its fiscal 2017 guidance, it will represent year-over-year growth of about 6.5%. And there's reason to believe that things are only beginning to heat up. In its Q2 2017 report, Ormat cites research identifying the geothermal market potential as 10 times the current installed capacity of 13.8 GW.
From trash to clean-energy treasure
Dealing in waste recovery and recycling solutions, Covanta reaps the rewards of rounding up refuse -- and you can, too, with the stock's 7.30% dividend yield. The company provides a variety of environmental solutions, but it earns its place in this peer group because of its prowess in generating energy from waste -- about 10 million MWh annually. Asserting its position as an industry leader, the company claims to have 70% of the American market. Expanding its global operations, the company expects in the fourth quarter to commence operations at its Dublin facility, which is believed to contribute about $60 million in EBITDA annually.
With about 85% of its revenue coming from long-term contracts, the company maintains stable cash flow and great clarity into its future operations. This, in part, contributes to management's estimate that the company will achieve adjusted EBITDA growth of 3% to 5% annually.
Investor takeaway
The energy landscape has changed drastically over the years. Long gone are the days when those espousing clean-energy options were seen as fringe players. Nowadays, it seems as if those rejecting clean-energy options are the ones on the outskirts. The country's (and world's) energy mix will, undoubtedly, incorporate more and more renewable sources, leaving investors with long-term horizons the opportunity to benefit from industry leaders like those we've looked at.
