As the world moves to combat the effects of climate change, these companies are making a difference and rewarding shareholders.
The U.S election results were a boost for green energy stocks as president-elect Joe Biden plans to set the U.S on a path to become carbon neutral by 2050. The impact on individual stocks is unclear, however, the long-term shift is inevitable. These two companies are benefiting and may be worth a buy.
Tesla (NASDAQ: TSLA) is an American electric vehicle and clean energy company led by visionary CEO Elon Musk.
Tesla is undoubtedly the leader in the electric vehicles space and controls approximately one-fifth of the market, which is growing rapidly. In its latest quarterly report, Musk stated that Q3 was Tesla’s “best ever history”. Revenue increased by 39% year-over-year (YoY) to $8.7 billion. It also reported its fifth consecutive quarter of profitability to a record $809 million and is being added to the S&P 500 index.
Tesla continues to invest and increase vehicle capacity in its existing factories with plans for a new factory in Berlin, opening this year. Deliveries have risen significantly in recent years as the company expands. Autonomous driving and the data that Tesla has continued to collect is a valuable tool. Tesla is ahead of the competition in this space with over 3 billion miles in autopilot mode traveled which is significantly more than its competitors.
Another opportunity for Tesla beyond automotive is its solar and energy business. Its energy business had record storage in Q3 and solar deployment. However, it only accounts for under 10% of revenue, but Musk believes it can rival its automotive business in years to come.
It would be impossible to talk about Tesla without touching on its high valuation, with its stock soaring more than 600% in 2020. Although it is ahead of its peers in autonomous driving and production of EV, the question is whether Tesla can maintain its foothold with increasing competition.
Revenue from regulatory credits doubled YoY and meant that Tesla was profitable in Q3 2020. However, it could be argued that this is not a sustainable source of income long-term, and if this decreases, it could hurt the business and the stock price.
NextEra Energy (NYSE: NEE) is a clean energy company headquartered in Florida and owns numerous subsidiaries. Its largest subsidiary, Florida Power & Light Company, serves more than 5 million customer accounts in Florida. In 2020, NextEra Energy was ranked on Fortune’s 2020 list of “World’s Most Admired Companies”.
It recently reached a milestone and surpassed Exxon Mobil as the most valuable energy company in America, albeit for a short time signifying a change. NextEra Energy as a whole produces more wind and solar energy than any other company worldwide.
Despite being a utility stock, NextEra Energy has gained just over 200% in the last five years. It recently reported strong quarterly results and this growth is expected to continue in the coming years regardless of COVID-19. In Q3, it reported adjusted earnings per share growth of 11% year-over-year and profit of $757 million.
NextEra Energy recently revealed plans for a $65 million green hydrogen facility plant which is planned to start by 2023. Green hydrogen is one path to a sustainable future and could be used to eliminate the use of fossil fuels. It is taking a “toe in the water” approach according to management but has also developed a pipeline of approximately 50 potential green hydrogen projects. It believes the market opportunity is 19-24 times that of today.
Its ambitions for the future don’t stop with green hydrogen, and the company has plans to invest heavily in the next few years with a planned spend of $50 billion.
The stock is trading at rich multiples, particularly given that it operates in the utility sector. Its dividend yield is also sitting at a meager 1.9% which suggests that the stock is not cheap.
Another thing to watch is the partnership between NextEra Energy (parent company) and NextEra Energy Partners. NextEra Energy sells completed assets to its partner to fund its spending. However, NextEra Energy partners debt has continued to grow, and its credit rating has dropped, which is worth noting as it could have a negative impact on both businesses.
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