Please ensure Javascript is enabled for purposes of website accessibility

Why Atlantica Sustainable Infrastructure Stock Surged 14% in October

By Matthew DiLallo – Nov 3, 2021 at 10:47AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The infrastructure company got a vote of confidence from a Wall Street analyst.

What happened

Shares of Atlantica Sustainable Infrastructure (AY 2.20%) jumped by 14% in October, according to data provided by S&P Global Market Intelligence. The main driver was a favorable report from a new analyst following the company. 

So what

An analyst at JonesTrading initiated coverage on Atlantica Sustainable Infrastructure in October, giving the company a buy rating and setting a $46 price target on the stock. Even after last month's rally, that price target implies the stock has more than 15% of upside from its Tuesday closing price.

People holding a laptop looking at wind turbines.

Image source: Getty Images.

The analyst pointed out that Atlantica is a leading sustainable infrastructure company that gets most of its revenue from renewable energy assets. At the end of the second quarter, renewable energy contributed 73% of Atlantica's revenue. Further, the analyst noted that the company has a lower-risk business model backed by long-term contracted assets. Overall, 100% of its revenue comes from long-term contracts or government-regulated rates. As a result, Atlantica generates stable cash flow, which helps support a sustainable dividend. 

Its focus on sustainability has it on track to deliver steady growth for the next few years. It expects a combination of organic growth, development projects, and third-party acquisitions will support annual cash flow growth in the range of 5% to 8% per share through 2024. That should enable Atlantica to continue growing its dividend. The company has increased its dividend at a 12% compound annual rate since 2018.  

Meanwhile, as part of the company's focus on sustainability, Atlantica set new science-based targets for greenhouse gas emissions, which it unveiled in early November. By 2035, the company aims to reduce its emissions by 70% compared to last year's level. While Atlantica already has a low carbon footprint due to its renewable energy focus, it has some natural gas assets and other emissions that it can offset in the future. That focus on sustainability makes Atlantica stand out for ESG investors.  

Now what

Atlantica has a smart strategy. It's focusing on owning infrastructure that's crucial for a more sustainable world. Further, it takes a lower-risk approach by owning assets that generate stable cash flow backed by long-term contracts. This business model enables the company to pay an attractive dividend -- which yields 4.3% after last month's rally -- and invest in expanding its operations. That should allow Atlantica to grow its cash flow and dividend, making it an attractive option for income-focused investors, especially those concerned about the environment.

Matthew DiLallo owns shares of Atlantica Sustainable Infrastructure plc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.