Clearway Energy Inc – New growth investments holds long-term growth prospects.

Clearway Energy Inc (NYSE: CWEN) is engaged in the renewable business in the United States, which has solar and wind projects. The quarterly dividend is payable on 15 March 2021 with a record date of 1 March 2021.

Investment Rationale – Buy at USD 28.00

• From a technical standpoint, 14-day RSI (27.60) indicates an oversold position, and thus, the stock price can go up in the short-term.
• Over the past three years (FY17 to FY20), gross margin and EBITDA margin have remained above 66% and 70%, respectively, reflecting decent fundamentals.
• Clearway has advanced its pro forma CAFD (Cash Available for Distribution) outlook to US$385 million post-signing 264 MW Mt. Storm wind project.
• Quarterly increase in dividends by 1.9% for Q1 FY21 underpins confidence in the outlook.

Risk Assessments

• CWEN has considerable debt commitments, including US$45 million of reserves for debt service, US$24 million designated for current debt service payments, and US$55 million is held in distribution reserve accounts.
• The Covid-19 pandemic could adversely affect the CWEN’s operations, financial conditions, and business performance.
• Certain facilities are newly constructed and can fail to perform as expected.

Recent News

3 March 2021: CWEN has priced its US$925 million offerings of 3.750% senior notes due 2031. The new notes are expected to mature on 15 February 2031, while the offering shall close on 9 March 2021, which is subject to customary conditions.

Financial Highlights for the year ended 31 December 2020 (as on 1 March 2021)

 (Source: Company Website)

• During FY20, CWEN invested US$880 million in new growth investments.
• Through project level debt optimization, it also executed US$1.4 billion in capital formation.
• The Company also signed an agreement for the 264 MW Mt. Storm wind project in February 2021.
• The dividend for Q1 FY21 has increased by 1.9% to US$0.324 per share.

One Year Share Price Chart    

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

CWEN should be able to optimise the balance sheet and advance its growth outlook by leveraging the recent signing of the 264 MW Mt. Storm wind project. Moreover, the Company has reiterated its long-term dividend growth target of 5-8% with the upper end in FY21, reflecting confidence in the short-term outlook. Furthermore, raising pro forma CAFD outlook following the new commitments holds bright prospects for the long run growth as well. In a nutshell, Clearway has evidently positioned itself for sustainable growth, operational excellence, and availability of substantial liquidity. Stock 52 week High and Low were USD 37.23 and USD 16.12, respectively.

 (Source: Company Presentation)

Based on the improved financials, new growth investments, dividend increment and support from the valuation conducted above, we have given an “Buy” recommendation on Clearway Energy Inc at the closing market price of USD 28.00 (as on 3 March 2021), with a lower double-digit upside potential based 33.83x Price/Earnings (approx.) on FY21E Earnings Per Share (approx.). 

*All forecasted figures and Peer Information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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