Baird Starts Coverage on 2 Top Solar and Renewable Energy Stocks

While the Baird team may be a little late to the party, better late than never, and they pick two stocks that may have some of the highest upside in the sector. Both are rated Outperform.

SunEdison

This stock ranks high with almost every firm we cover on Wall Street. SunEdison Inc. (NYSE: SUNE) manufactures solar technology and develops, finances, installs and operates distributed solar power plants, delivering predictably priced electricity and services to its residential, commercial, government and utility customers. SunEdison also provides 24/7 asset management, monitoring and reporting services for hundreds of solar systems worldwide via the company’s Renewable Operation Center (ROC). SunEdison and its yieldco, TerraForm Power, signed a definitive agreement last year to acquire First Wind for a total sum of $2.4 billion. The combined entity becomes one of the largest clean energy companies in the world.

With the cash generation potential of SunEdison due to the multitude of positive corporate moves becoming increasingly clear, the sum-of-the-parts-based value above $30 a share seems very realistic. In addition, the Baird analysts point out in the report plans to launch an emerging market yieldco, and it could move to a general partner/limited partner structure to unlock additional shareholder value.

ALSO READ: Is Yingli Green Energy About to Implode?

With a potential for a three-year megawatt deployed compounded annual growth rate of almost 35%, the upside for the stock is clear. The Baird team also notes that despite the stock being a favorite of the hedge fund community, they feel that it is still very-owned, and that could change as the company executes on current and future plans.

The Baird price target for the stock starts at $35. The Thomson/First Call consensus target is $33.38. Shares closed Wednesday at $29.25.

TerraForm Power

This company may be just the right stock for investors that like the sector, but want a more conservative route. TerraForm Power Inc. (NASDAQ: TERP) owns and operates solar and wind generation assets serving utility, commercial and residential customers. Its portfolio consists of solar projects located in the United States, Canada, the United Kingdom and Chile, with total nameplate capacity of 887.1 megawatts. The company was formerly known as SunEdison Yieldco and changed its name last year, and it is perhaps one of the highest profile companies operating as a yieldco. Some Wall Street analysts see distributions rising to 5.65% by 2017.

The Baird team feels that the combination of dividends and a growth-oriented company in the renewable energy field makes good sense. They also note that the company’s relationship with the sponsor SunEdison is a positive because of its large development pipeline and incentive to grow TerraForm’s portfolio, which is composed of projects with long-term contracts in place, solid counterparties with high investment grade credit ratings, very diversified assets (including solar and wind projects) and low asset ages.

The Baird price target is posted at $45, and the consensus target is at $44.57. The stock closed trading Wednesday at $39.08.

ALSO READ: Why Merrill Lynch Still Sees Big Upside in SolarCity and Vivint Solar

For clean technology and solar energy, the question is no longer if, but when. Long-term growth investors need to carve out at least a small position in portfolios for one or more of the top companies. The Baird selections are perfect for aggressive and regular growth accounts.