Why TerraForm Stock Could Double—and Save the World at the Same Time

Why TerraForm Stock Could Double—and Save the World at the Same Time
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Why Investors Should Notice TerraForm Power Saving the World

Climate change is real, folks. Despite some pushback from the White House, the outlook for green alternative energy will continue to grow worldwide, whether the power is generated from solar, wind, or water.

An intriguing mid-cap play on the alternative energy market is TerraForm Power Inc (NASDAQ:TERP), which traded at a 52-week high of $12.70 on March 14, which was still well below its record high of $35.50 in April 2015.

Whether TERP stock can trade back to its record high is, in my view, not a matter of if, but when. The reality is that innovative alternative energy companies like TerraForm are difference-makers and are destined to play a much bigger role as we move forward.

Consider that TerraForm owns and operates solar and wind power assets emitting around 3,600 megawatts (MW) of renewable power.

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TerraForm’s assets are about two-thirds in the United States, with the rest in the European Union, Canada, and other jurisdictions. In 2018, the company paid $1.2 billion to acquire Spain-based Saeta Yield, S.A.U., an operator of wind and solar assets generating around 1,000 MW of power.

TerraForm’s energy output is commonly sold via long-term contracts to utilities and other users in the country where the assets are situated.

On the chart, TERP stock just broke out at $12.00 resistance and will try to retake $15.00 in what has been a long-term base following the sell-off from the high in 2015.

Chart courtesy of StockCharts.com

The sideways channel indicates strong support around $10.00, representing the downside risk for TerraForm stock.

Investors Need to Think Long-Term With TERP Stock

Alternative energy companies like TerraForm Power Inc are all about growth in power generation and revenues. TerraForm’s capital expenditure demands are significant, especially as the company expands its assets.

In the case of TerraForm, the company has managed to grow its revenue in four of the past five years, except for in 2017, when there was a small decline.

Revenue increased nearly sixfold from 2014 to 2018, including an encouraging 20.9% rebound in 2018. But revenue in 2018 was short of the $802.7 million consensus estimate.

Fiscal Year Revenue (Millions) Growth
2014 $130.1 1,867%
2015 $464.6 257.3%
2016 $676.4 45.6%
2017 $634.3 -6.2%
2018 $766.6 20.9%

(Source: “TerraForm Power Inc. Cl A,” MarketWatch, last accessed March 15, 2019.)

For 2019, TerraForm is estimated to grow its revenue to $989.6 million. (Source: “TerraForm Power, Inc. (TERP),Yahoo! Finance, last accessed March 15, 2019.)

The key for TERP stock will be the company’s ability to manage the cost side and become more efficient. On this note, TerraForm turned an adjusted $0.07 in profits in 2018.

Unfortunately, the company is expected to move back to the loss column, with an estimated adjusted loss of $0.05 per diluted share in 2019, but there is a high estimate of profits of $0.30 per diluted share. (Source: Ibid.)

Analyst Take

As TerraForm Power Inc focuses on expanding its capacity globally, investors should expect heavy capital expenditure spending. An encouraging sign is that the company generated positive free cash flow in 2016 and 2017.

As the debates regarding climate change continue, alternative energy players like TerraForm should fare well.