Operating one of the world’s largest publicly-traded renewable power platforms, Brookfield Renewable Partners L.P.’s (BEP) portfolio consists of roughly 21,000 MW of capacity and nearly 6,000 generating facilities across North America, South America, Europe and Asia. The price of the Hamilton, Bermuda-based company’s units have climbed 25.3% over the past nine months to close yesterday’s trading session at $37.82. And its funds from operations (FFO) increased 11.5% year-over-year to $242 million for the first quarter, ended March 31, 2021.
However, BEP’s revenue for the quarter came in at $1.02 billion, compared to $1.05 billion in the prior-year quarter. And its net loss came in at $55 million in the quarter versus $89 million in net income in the year-ago period.
BEP has agreed to sell certain assets as part of its capital recycling strategy. Its units have lost 7.5% over the past three months and 6.1% over the past month.
So, here’s what we think could influence BEP’s performance in the near term:
Increasing Demand for Renewable Energy
With growing climate change concerns, governments and businesses worldwide have been increasing their focus on the use of renewable energies to speed up decarbonization. The United States, EU, Canada, and Japan have announced their plans to reduce emissions by roughly half by 2030, while the United Kingdom announced its plans to reduce emissions by almost 80% by 2035. In fact, the consumption of renewable energy in the United States grew for the fifth consecutive year in 2020. And, according to a report by DownToEarth, global energy investment is expected to increase 10% year-over-year to roughly $1.9 trillion in 2021.
With a dominant market position in the renewable energy space, BEP should benefit from the industry tailwinds. However, it faces stiff competition from other players in the renewable space, such as NextEra Energy Partners, LP (NEP), Atlantica Sustainable Infrastructure plc (AY), and Renewable Energy Group, Inc. (REGI).
In April, BEP agreed to sell its remaining 360 megawatts of operating assets and development pipeline in Ireland, and roughly 270 megawatts of its ready-to-build wind assets in Scotland. The company also signed an agreement to sell 390 megawatts of wind assets, primarily in California. These moves are part of its capital recycling strategy. It is selling mature, de-risked or non-core assets with the goal of using the net proceeds to fund growth opportunities and expand its pipeline. However, the asset sales narrow the company’s portfolio and make its prospects uncertain in the transitory phase.
In terms of forward EV/S, BEP’s 12.69x is 183.3% higher than the 4.48x industry average. Its 28.11x forward P/CF is 229.5% higher than the 8.53x industry average. The stock’s forward P/S and EV/EBITDA of 4.55x and 27.60x, respectively, are also higher than the 2.46x and 11.40x industry averages.
Unfavorable POWR Ratings
BEP has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. BEP has a D grade for Quality. This is justified given its negative values for ROCE and ROTA versus the 9.95% and 2.64% respective industry averages.
The stock also has a D grade for Momentum, which is in sync with its 8.2% loss over the past six months and 7.5% decline over the past three months. BEP has an F grade for Value, consistent with its significantly higher-than-industry valuation ratios.
In addition to the POWR Ratings grades we’ve just highlighted, we’ve also rated BEP for Sentiment, Growth, and Stability. Get all the BEP ratings here.
BEP is ranked #12 of 12 stocks in the MLPs – Other group.
Better than BEP: Click here to access five top-rated stocks in the same group.
While BEP is one of the top players in the renewable energy space, it has been losing momentum over the past few months. Its EPS is expected to remain negative in fiscal 2021. Furthermore, its lofty valuation is not in sync with its near-term growth prospects. So, we think it’s wise to avoid the stock now.
BEP shares were trading at $37.26 per share on Thursday morning, down $0.56 (-1.48%). Year-to-date, BEP has declined -13.65%, versus a 14.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More…
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