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Clearway Energy, Inc.'s (NYSE:CWEN.A) solid earnings announcement recently didn't do much to the stock price. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.
See our latest analysis for Clearway Energy
The Impact Of Unusual Items On Profit
To properly understand Clearway Energy's profit results, we need to consider the US$27m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Clearway Energy doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.
That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
An Unusual Tax Situation
Just as we noted the unusual items, we must inform you that Clearway Energy received a tax benefit which contributed US$15m to the bottom line. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! Of course, prima facie it's great to receive a tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.
Our Take On Clearway Energy's Profit Performance
In the last year Clearway Energy received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. Having said that, it also had a unusual item reducing its profit. Based on these factors, it's hard to tell if Clearway Energy's profits are a reasonable reflection of its underlying profitability. If you'd like to know more about Clearway Energy as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Clearway Energy (of which 1 is a bit unpleasant!) you should know about.