Congress is moving closer to passing a $1 trillion infrastructure package and it's possible a multi-trillion dollar package will follow close behind. For investors, this could be a windfall, particularly for companies in the renewable or alternative energy field.
Funding will be widespread in renewable energy, so when three of our contributors were asked for their top renewable energy stock to benefit from the infrastructure package the answers varied widely. But MasTec (NYSE:MTZ), Proterra (NASDAQ:PTRA), and ChargePoint Holdings (NYSE:CHPT) made it to the top of this list because they all could have huge tailwinds behind them.
The contractor building renewable energy infrastructure
Travis Hoium (MasTec): If the $1 trillion infrastructure bill passes, it would include a tremendous amount of money for physical infrastructure that will need to be built by contractors. MasTec builds all kinds of infrastructure, but it's a big contractor in transmission to get renewable energy from the power plant to the grid and other markets that should benefit. Here are a few of the highlighted areas:
- $65 billion investment in the electric grid.
- $55 billion for water infrastructure upgrades.
- $50 billion to make the water system more resilient.
- $39 billion to modernize public transit.
- $65 billion for broadband infrastructure.
For contractors like MasTec, this will be a tailwind that could last a decade. The company provides contractor services in each of the infrastructure segments I highlighted above and the stimulus could be a windfall for the company.
You can see below that Mastec is a steady operator, but hasn't seen much growth in the last few years.
MasTec can position itself with the tools and expertise to build renewable energy and other infrastructure, but it relies on macro tailwinds to drive revenue and earnings growth. A huge boost in infrastructure spending would be a boon for the company. Infrastructure contractors like MasTec may not get a lot of media attention, but it's the kind of company that will benefit greatly from any infrastructure bill.
Squarely in the right place
Howard Smith (Proterra): The bipartisan infrastructure package in its current form contains $15 billion for electric vehicles. That includes $7.5 billion for zero- and low-emission buses, reportedly including thousands of electric school buses. Another $7.5 billion is designated for EV charging infrastructure. Proterra is positioned to benefit from spending on both.
Those investments could have a long-term impact on Proterra, which reported revenue of just $59 million in the second quarter of 2021 and estimates full-year sales of just under $250 million. The company is already growing with its full-year 2021 revenue guidance marking a 25% increase over 2020 revenue.
Proterra's three business units are all in line for investments from the proposed infrastructure bill. Its transit unit offers battery-electric buses including for school, coach, and shuttle use cases. Proterra energy includes charging infrastructure with a cumulative total of more than 55 megawatts since 2016. Its powered segment provides battery technology as well as electric drivetrains and high-voltage systems for commercial EVs.
Proterra says the infrastructure bill would increase funding specifically for transit bus electrification to more than $800 million per year over the next five years. That compares to just $182 million in 2021. But while its business is in the crosshairs for additional government spending with the passage of the bill, investors should realize it's still a speculative bet.
The company reported negative adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA, in the second quarter, and a net loss of $189 million. And based on its 2021 full-year revenue guidance, the stock is trading at a price-to-sales ratio of about nine. The company has a solid balance sheet, however, with $762 million in unrestricted cash and short-term investments as of June 30.
For investors wanting an aggressive investment that would benefit from the passage of a federal infrastructure bill in several ways, Proterra might fit the bill.
A needed jolt to kick-start what could be years of monster growth
Daniel Foelber (ChargePoint): Electric vehicle charging infrastructure company ChargePoint reported its second-quarter fiscal year 2022 results on Sept. 1. Despite popping 8% the next day, the stock is still down 45% for the year at the time of this writing. The main culprit for the downward pressure could be the company's inability to live up to growth expectations. But it could also be the simple fact that the pure-play EV charging industry will need time to grow into the industry the market hopes it can become.
As North America's market leader in EV charging, ChargePoint is well positioned to take advantage of increased EV adoption. The company's entrenched position in Level 2 charging, added influence in Europe, and growing subscription business are all reasons to like the company long-term. However, management has been honest about the importance of Congress passing a favorable U.S. infrastructure bill.
In its Q2 2022 conference call, CEO Pasquale Romano called out the tailwind that the bipartisan infrastructure bill would provide for ChargePoint's industry. The version passed by the U.S. Senate in August includes $7.5 billion specifically for EV charging. Federal support for EV charging is intended to subsidize charging in underserved communities as a sort of carrot-and-stick approach to encourage EV adoption in places where it's lacking. In addition to federal support, states like California have passed their own legislation that supports the industry. California's state budget includes up to $3.9 billion over the next three years toward zero-emission vehicles and charging incentives.
Excitement for public spending and ongoing private investment in charging bodes well for ChargePoint's future. But with just $146 million in fiscal year 2021 sales, ChargePoint stock is currently trading at a nosebleed price-to-sales ratio of 48. However, the company is confident that its growth rate will begin to take off in the coming years. ChargePoint's freshly updated forecast from Sept. 1 calls for 2022 revenue of $225 million to $235 million, the midpoint of which would represent a 57% increase over 2021 sales. From there, the company thinks it can grow revenue to nearly $1 billion by fiscal 2024, with positive adjusted EBITDA occurring that year as well. Given the uncertainty, ChargePoint is undoubtedly a very high-risk, high-reward EV infrastructure stock. An infrastructure bill would be a big boost for ChargePoint and increase its chances of living up to the hype.
A boost for companies building energy infrastructure
What each of these companies has in common is that they're building products that are foundational to more renewable energy use. Transmission lines, EV chargers, and buses may not get a lot of headlines, but they're foundational to a cleaner energy future. And that's what we could see the government spend trillions on over the next few years.