When talk around the water cooler turns to energy investments, it's oil and gas companies that represent the usual suspects. Renewable energy companies like Vestas Wind Systems (OTC:VWDRY), First Solar (NASDAQ:FSLR), and Ormat Technologies (NYSE:ORA) -- companies whose names are far less recognizable than those like ExxonMobil and Chevron -- may not be on most investors' radars. However, there are certainly reasons to believe that they should be.
Despite the Trump administration's apparent lack of enthusiasm about renewable energy solutions, the industry continues to experience rapid growth worldwide. According to the International Renewable Energy Agency (IRENA), global renewable generation capacity increased by 167 gigawatts in 2017, representing year-over-year growth of about 8.3%. Speaking to this fact, General Adnan Z. Amin, IRENA's director, recently stated, "This latest data confirms that the global energy transition continues to move forward at a fast pace, thanks to rapidly falling prices, technology improvements and an increasingly favorable policy environment."
Time to get wind of this
One of the world's largest providers of wind power solutions, Vestas is one renewable energy stock that investors may have blown past. However, it's one they should certainly catch up to as global demand for wind power continues to rise. At the end of 2017, for example, Vestas reported a company record for combined -- turbines and service -- backlog of 21 billion euros.
Unlike many renewable energy companies, Vestas has demonstrated consistent profitability. In 2017, for example, the company reported earnings of 1.40 euros per share from revenue of 10 billion euros according to Morningstar. Perhaps the more compelling demonstration of the company's financial prowess comes from a look at its cash flow, though. Last year, Vestas generated 1.6 billion euros and 1.2 billion euros in operating cash flow and free cash flow, respectively.
Management's commitment to rewarding shareholders is another way in which the company can put some wind in investors' sails. Over the past three years, the company has bought back more than 1.24 billion euros in stock, and the company currently sports a 2.28% dividend yield.
A bright idea for your consideration
For nearly 20 years, First Solar has been helping utilities, corporations, and other organizations transition to a more sustainable energy solution. Headquartered in Arizona, the company will presumably benefit as its foreign competitors face impending solar tariffs on panels sold in the U.S., and management recognizes the recent tax overhaul as a factor which positions the company to grow significantly in the coming years. Last week, First Solar announced its plan to build a new Series 6 solar module manufacturing facility near its existing flagship plant in Ohio; management expects construction to begin in mid-2018 and full production to occur in late 2019.
Estimating higher capital expenditures for 2018 than previously thought, First Solar now expects its net cash balance (cash and marketable securities less expected debt) between $2 billion and $2.2 billion as opposed to the initial guidance of $2.1 billion to $2.3 billion. During the Q1 2018 earnings presentation, however, the company reaffirmed 2018 operating income guidance of $130 million to $180 million and earnings per share guidance of $1.50 to $1.90.
On solid ground
With 795 MW of assets located in the U.S., Guatemala, Guadeloupe, Honduras, Indonesia and Kenya, Ormat is the self-proclaimed "only vertically integrated company engaged in geothermal and recovered energy generation." But the company's not resting on its laurels as a leading provider of geothermal solutions. The company, intent on expanding its presence in the energy storage market, recently announced its subsidiary, Viridity Energy Solutions, expects to start construction of a 20 MW energy storage facility in New Jersey soon with the goal of commencing operations in the fourth quarter of 2018.
Ormat, since 2010, has grown revenue and operating income in each consecutive year. And if it achieves the midpoint -- $700 million -- of its revenue guidance for 2018, it will further extend the trend.
In addition to opportunities in California and Nevada, Ormat recognizes potential sources for growth in various markets worldwide like Mexico, Ethiopia, China, and Japan. Entrance to these new markets and an eye on acquisitions to expand its renewable energy solutions beyond geothermal present Ormat as a compelling opportunity for investors.
Whether it's wind, solar, or geothermal, the options for energy-oriented investments are far more diverse than the traditional oil and gas plays. And as local and state governments -- in addition to politicians worldwide -- continue to express enthusiasm for renewable energy, not solely through rhetoric but through legislation, it's clear that there's ample opportunity for investors to benefit.
|Company||Price-to-Cash Flow||Price-to-Cash Flow 5-Yr. Average|
|Vestas Wind Systems||7.18||8.59|
And providing further evidence of the auspicious opportunities which Vestas, First Solar, and Ormat offer at the moment, investors will find that all three stocks are reasonably priced, trading at valuations well below their historical averages.