While the debate rages over the causes of climate change, one thing is for sure, extreme weather is becoming more prevalent and one segment that is directly involved in helping to lower greenhouse gas emissions is clean technology. A new report from Merrill Lynch focused on thematic investing points out that extreme weather events are becoming the new normal, with extremes now covering 10% of the globe, compared to 0.1% to 0.2% from 1951 to 1980.
The Merrill Lynch report points out that by 2030 energy demand may increase by as much as 50%, and a great deal of that will need to come from solar and other alternative energy avenues. From a massive list of stocks that are in the climate change and extreme weather theme at Merrill Lynch, we zeroed in on the firm’s top alternative energy companies: SolarCity Corp. (NASDAQ: SCTY), SunEdison Inc. (NYSE: SUNE), SunPower Corp. (NASDAQ: SPWR) and TerraForm Power Inc. (NASDAQ: TERP).
SolarCity
The analysts feel this pure-play leader in the fast-growth, roof-top solar as a service market has a balance sheet that will support growth in 2015 and beyond. With many long-term contracts providing visibility into future cash flows, SolarCity is a top name for risk tolerant investors to own. While some on Wall Street feel that the company’s cost of funding may be higher going forward, it will remain below the 6% residual value calculations considered key, and the current valuations are a compelling reason to own the stock.
The Merrill Lynch price objective for SolarCity is a big $95, and the Thomson/First Call consensus price target is lower at $84.50. Shares closed trading Thursday at $51.77.
ALSO READ: Earnings and Yieldco News Driving Solar Stocks Higher
SunEdison
One of the top clean tech picks at Merrill Lynch, SunEdison also is widely recommend around other Wall Street firms we cover as well. The company 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.
SunEdison and its yieldco TerraForm Power signed a definitive agreement in November 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, a sum-of-the-parts-based value above $30 a share seems very realistic.
The Merrill Lynch price target is set at $32, but the consensus target is lower at $29.83. The stock closed Thursday at $23.17.
SunPower
SunPower and First Solar announced recently plans to jointly form a publicly traded yieldco. Some on Wall Street feel this may make both companies a combined takeover target.
SunPower offers solar power products, including panels, balance of system components and inverters. It also designs, manufactures and sells high-performance rooftop and ground-mounted solar power systems, as well as utility-scale photovoltaic power plants. In addition, the company offers operations and maintenance services, including remote monitoring, preventative and corrective maintenance services, as well as rapid-response outage restoration and inverter repair services.
The Merrill Lynch price objective is $42, while the consensus target is $41.08. The stock closed trading on Thursday at $33.60 a share.
TerraForm Power
TerraForm Power 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 but changed its name to TerraForm Power last year. 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.
TerraForm investors are currently paid a 3.3% distribution. The $39 Merrill Lynch price target is about the same as the consensus target of $39.14. Shares closed on Thursday at $35.38.
ALSO READ: 5 Clean Energy Stocks That Are Potential Buyout Candidates
For clean technology and solar energy, the question is no longer if, but when. Long-term aggressive growth investors have been carving out at least a small position in portfolios for one or more of the top companies in solar energy and in alternative energy.
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