Clearway Energy Inc

CWEN Details

Clearway Energy Inc (NYSE: CWEN) is one of the major renewable energy players in the US. It has more than 4,200 net MW of installed wind and solar generation projects.

Q2FY21 Results Performance (For the Period Ended 30 June 2021)

Higher Revenue: Total Operating revenue increased to $380 million in Q2FY21 from $329 million in Q2FY20. Resultantly, during H1FY21, total Operating revenue rose to $617 million from $587 million in H1FY20.

Improved EBITDA: Adjusted EBITDA improved to $365 million in Q2FY21 from $316 million in PCP driven by the contribution from growth investments as well as improved renewable energy conditions, and an increase in volumetric sales at the Thermal segment. In H1FY21, EBITDA increased to $563 million from $541 million in H1FY20.

Net Income Reduced to $32 million: The company witnessed a decline in net income to $32 million in Q2FY21 from $76 million in the PCP mainly on account of a one-time gain from the divestiture of its residential solar portfolio in Q2FY20.  However, the interim period witnessed the company’s net loss widening to $44 million from a net loss of $31 million in the pcp.

Financial Snapshot (Source: Company Reports)

Outlook

Focused on Driving Growth: The company’s emphasis remains on the re-contracting of the California natural gas assets and it expects further advancement in Q3FY21. Also, it is witnessing further progress on the next co-investment prospect of an over 1 GW portfolio of wind and solar projects along with an expansion in its renewable development pipeline by over 6 GW since last quarter. Additionally, its COD targets for H2FY21 remain on track for closing by the end of the year.

Growth Target: CWEN has raised the quarterly dividend for Q3FY21 by 1.7% to $0.3345 per share and it is going as per the plan to achieve the upper end of the annual growth target of 5-8% by the end of 2021.

Liquidity to Support Growth: The company has overall liquidity of $810 million as of 30 June 2021. It has maintained its 2021 full year cash available for distribution (CAFD) guidance of $325 million as well as its pro forma CAFD outlook expectations of around $395 million.

Key Risks

The company’s operations are exposed to substantial governmental regulation, including environmental laws. Any changes in laws or regulations would hamper its electric generation business. Further, its generation of renewable energy is highly reliant on suitable meteorological conditions. Any severe weather conditions would have an adverse impact on its revenue. It is also susceptible to the risk of fuel and electricity price volatility.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Stock Recommendation

We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price that reflects a fall of low double-digit (in % terms). A slight discount has been applied to EV/Sales Multiple (NTM) (Peer Average), considering decline in net margin, ROE, and current ratio, and increase in debt-to-equity ratio during Q2FY21 compared to the same quarter last year. The stock increased by ~17.8% in 3 months. It has made a 52-week low and high of $22.69 and $37.23, respectively.

Considering the aforementioned factors along with the current trading levels, and the associated business risks, we advise the investors to liquidate the stock.

We give a “Sell” rating on the stock at the current market price of $32.30 per share, 9:40am GMT-4, Eastern Daylight Time, USA, as on 2^nd September 2021.

Technical Overview:

Chart:

Source: REFINITIV, Purple Color Line Reflects RSI (14-Period)

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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