The global energy market is witnessing an accelerating shift towards renewable sources, and Clearway Energy (CWEN) is leading the transition. A leading producer of clean energy in the U.S., Clearway boasts a diversified portfolio of renewable energy assets, including wind, solar, and thermal generation facilities. The company has consistently shown resilience amid market volatility, underpinned by its long-term power purchase agreements. Despite an expected slowdown in growth this year, Clearway’s strong financial stability, attractive valuation, and anticipated resurgence in growth make it a potentially appealing prospect for income-oriented investors looking to gain exposure to the expanding renewable energy sector.
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Clearway Expanding Its Production Capacity
Clearway Energy is a leading player in clean energy generation in the U.S., with a significant portfolio of approximately 11.4 GW of gross generation capacity across 26 states. This portfolio primarily comprises 9 GW of wind, solar, and energy storage and an additional 2.4 GW of dispatchable power generation, which provides essential grid reliability services.
The company is focused on expanding its portfolio, recently securing an investment commitment for the Pine Forests Solar and Storage Project. Additionally, an offer is under evaluation for investing in Phase 1 of the Honeycomb battery hybridization program. This initiative involves developing and constructing contracted battery assets adjacent to Clearway’s existing fleet of solar projects in Utah. Subject to approval, Clearway could potentially invest approximately $85 million in corporate capital at an approximately 10% capped yield into the projects, due for funding in 2026.
Clearway’s Recent Financial Results
The company has recently reported results for Q3 2024. Revenue of $486 million surpassed analysts’ expectations by $72.53 million. Notable highlights include a net income of $27 million, adjusted EBITDA of $354 million, and cash from operating activities amounting to $301 million. The year-over-year increase in net income is primarily due to the mark-to-market impact of economic hedges and a reduction in tax expenses. Growth investments mainly drove the rise in adjusted EBITDA from 2023 despite being partially offset by the expiration of El Segundo’s tolling agreement in Q3 2023. The company reported GAAP earnings per share (EPS) of $0.35 fell short of consensus expectations by $0.18
As of the quarter’s end, the company reported $382 million in restricted cash, primarily comprised of funds to satisfy specific debt requirements and limited in its use within the company’s projects. This includes $183 million set aside for operating expenses, around $71 million designated for current debt service payments, and $89 million reserved for debt service, performance obligations, and other items, such as capital expenditures. The remaining $39 million is held in distribution reserve accounts. Possible future liquidity sources might include surplus operating cash flow, availability from the revolving credit facility, asset dispositions, and potential new corporate debt and equity financings, which could dilute current shareholders.
Clearway Energy’s Board of Directors authorized a quarterly dividend of $0.42, representing a dividend yield of 5.89%, payable on December 16, 2024, to stockholders recorded as of December 2, 2024.
CWEN’s management has issued guidance for 2024, predicted cash available for distribution (CAFD) of $395 million. Furthermore, the company has initiated 2025 full-year CAFD guidance, with a midpoint of $420 million and a range from $400 million to $440 million.
What Is the Price Target for CWEN Stock?
The stock has been on an upward trend, climbing 31% over the past year. It trades at the upper half of its 52-week price range of $20.63 – $30.92 and shows ongoing positive momentum as it trades above the 20-day (27.49) and 100-day (27.26) moving averages. The P/B ratio of 1.52x sits at a slight discount to the Renewable Utilities industry average of 1.87x.
Analysts following the company have been constructive on CWEN stock. For example, CIBC recently reiterated an Outperform rating and increased the price target on the shares from $33 to $34, noting they anticipate positive developments in the power sector and the advantages of lower rates and expect the firm to meet or exceed current estimates.
Based on nine analysts’ recent recommendations, Clearway Energy is rated a strong buy overall. The average price target for CWEN stock is $33.33, representing a potential upside of 20.72% from current levels.
Closing Thoughts on CWEN
Despite anticipated slower growth, Clearway Energy’s financial stability, attractive valuation, and expected upturn in growth make it a compelling consideration for investors eager to tap into the expanding renewable energy sector. Q3 2024 revenue surpassed expectations, and the company has also made significant progress in expanding its production capacity. Its focus on growth investments and promising expansion projects suggests a promising outlook. CWEN remains an attractive dividend-paying opportunity in the renewable energy market.
