Growing concerns about global warming have compelled many countries to set sustainability goals and implement initiatives to achieve carbon neutrality over the next few decades. However, as many countries focus now on their economic revival from last year's pandemic-led recession, climate change actions are to a degree on hold.
Though most of the developed countries plan to curb carbon emissions over the next several decades, only a handful of policies dedicated toward climate change have been passed into law globally. For example, even negotiations regarding President Biden’s proposed $2.3 trillion infrastructure package, which contains many climate change elements, have come to a halt in the U.S. Senate for now after Senate Republicans delivered a $928 billion counter offer to Biden’s proposal.
Given this backdrop, renewable stocks NextEra Energy, Inc. (NEE), Plug Power, Inc. (PLUG), and Enphase Energy, Inc. (ENPH), prices for which skyrocketed over the past year on investor optimism, look extremely overvalued at their current levels. So, we think these stocks are best avoided now.
NextEra Energy, Inc. (NEE)
NEE generates, transmits, distributes and sells electric power to retail and wholesale customers worldwide. The company generates electricity through wind, solar, nuclear and fossil fuels, such as coal and natural gas. Through its subsidiaries, it also operates multiple commercial nuclear power units.
On April 1, 2021, NEE subsidiary Florida Power & Light Company (FPL), along with Gulf Power, announced plans to develop clean, zero-emissions energy solutions. By removing old and less efficient power plants, the company will make operational its largest solar-powered battery storage facility, along with seven new solar energy centers, by the end of this year, thus helping its customers save fuel costs. FPL forecasts nearly 40% of its power will be generated by zero-emissions energy sources by the end of the decade.
For the first quarter ended March 31, NEE’s operating revenues have decreased 19.2% year-over-year to $3.73 billion. The company’s operating income came in at $669 million, which represents a 66.2% year-over-year decline. It had cash and cash equivalents of $1.46 billion as of March 31, 2021.
However, a consensus revenue estimate for the current quarter, ending June 30, 2021, represents a 4.3% year-over-year decline. In terms of forward EV/Sales, NEE is currently trading at 10.02x, 120.6% higher than the 4.54x industry average. And in terms of its forward Price/Sales, the stock is currently trading at 7.03x, 176.5% higher than the 2.54x industry average. NEE has lost 3.2% over the past month and closed yesterday’s trading session at $72.14.
NEE's POWR Ratings are consistent with this bleak outlook. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a D grade for Value and Momentum. We have also graded NEE for Stability, Sentiment, Quality and Growth. Click here to access all NEE’s ratings.
NEE is ranked #20 of 57 stocks in the F-rated Utilities - Domestic industry.
Plug Power, Inc. (PLUG)
PLUG is a provider of alternative energy technology that focuses on the design, development and commercialization of hydrogen fuel cell systems used for the industrial off-road market and the stationary power market. The company offers its products to retail-distribution and manufacturing businesses through a direct product sales force, original equipment manufacturers, and dealer networks.
The Gross Law Firm has announced a class action lawsuit against PLUG on May 7, 2021. According to the plaintiff, PLUG has failed to file its 2020 annual report on time due to delays in reviewing the classification of certain costs and other matters, and that it was likely to report a failure to maintain appropriate internal controls over financial reporting. Also, the defendants' positive statements about PLUG’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis. The lawsuit is likely to affect PLUG’s sales significantly in the near-term.
PLUG's financial prospects are also not promising. For its fiscal 2020 fourth quarter, ended December 31, 2020, PLUG’s net revenues came in at a loss of $316.34 million, compared to a net revenue of $91.66 million in the prior year quarter. The company’s gross loss was $422.66 million, compared to a gross profit of $12.78 million. Its operating loss is reported at $470.50 million, up 6139.2% from the prior-year period. While its net loss increased 2503.7% year-over-year to $476.17 million, its loss per share increased 1500% to $1.12. As of December 31, 2020, the company had cash and cash equivalents of $1.63 billion.
Analysts expect the company’s EPS to remain negative for the coming quarters. Also, PLUG’s EPS is expected to decline at a 40% rate per annum over the next five years.
PLUG valuation ratios are much higher than its peers. In terms of its forward EV/Sales, PLUG’s 38.28x is 1809.5% higher than the 2x industry average. In terms of forward EV/EBITDA, the stock is currently trading much higher than the industry average (1437.8x versus 13.05x). The stock has lost 12.1% over the past three months and closed yesterday’s session at $33.49.
It’s no surprise that PLUG has an overall F rating, which equates to Strong Sell in our POWR Ratings system. The stock also has an F grade for Stability, Sentiment, Value, Quality and Growth. Click here to see the additional POWR Ratings for PLUG’s Momentum.
PLUG is ranked #86 of 88 stocks in the B-rated Industrial - Equipment industry.
Click here to check out our Industrial Sector Report for 2021
Enphase Energy, Inc. (ENPH)
ENPH is a provider of energy management solutions for the solar photovoltaic industry worldwide. The company manufactures and sells semiconductor-based microinverters, combined with its proprietary networking and software technologies to provide energy monitoring and control services. It serves solar distributors, original equipment manufacturers, strategic partners, and homeowners, as well as the do-it-yourself market.
Palomar Solar, a leading solar energy installation company, expanded its ENPH’s Enphase Storage business on April 29, 2021, and made valuable contributions to the companies’ long-standing collaboration on home energy technology and new-product testing and feedback. The feedback and testing data from Palomar will enable ENPH to design a robust solar-plus-storage system. Both companies hope to witness a surge in demand from their customers.
For its fiscal year 2021 first quarter, ended March 31, ENPH’s cost of revenues increased 43.2% year-over-year to $178.81 million. Its loss before income taxes came in at $1.67 million, compared to income of $57.07 million in the prior-year period. As of March 31, 2021, the company had cash and cash equivalents of $1.49 billion.
In terms of forward EV/EBITDA, ENPH’s 58.42x is 245.5% higher than the 16.91x industry average. Its 14.29x forward Price/Sales of 14.29x is also significantly higher than the 4.07x industry average. ENPH has lost 20.7% year-to-date and closed yesterday’s trading session at $139.15.
ENPH’s poor prospects are also apparent in its POWR Ratings. The stock has a D grade for Value and Stability. In addition to the POWR Ratings grades we’ve just highlighted, you can see ENPH’s ratings for Growth, Sentiment, Quality and Momentum here.
The stock is ranked #2 of 21 stocks in the F-rated Solar industry.
NEE shares were trading at $72.45 per share on Wednesday afternoon, up $0.31 (+0.43%). Year-to-date, NEE has declined -5.10%, versus a 13.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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