Chicago, IL – December 16, 2024 – Today, Zacks Equity Research discusses Excelerate Energy EE, TXNM Energy TXNM, GEVO, Inc. GEVO and FuelCell Energy FCEL.
Link: https://www.zacks.com/commentary/2383444/4-alternative-energy-stocks-to-buy-amid-rising-raw-materials-cost
With the rapidly growing electrification of the transportation sector, the U.S. electric vehicle market is expected to register solid growth in the near term. This should bolster alternative energy stocks’ prospects. However, the rising price of wind turbines and the strained U.S.-China relationship might negatively impact the growth rate of these stocks.
Nevertheless, per the U.S. Energy Information Energy (EIA), wind generation in the United States is projected to increase 6.6% year over year in 2024, which should bode well for alternative energy stocks. The forerunners in the U.S. alternative energy industry are Excelerate Energy, TXNM Energy, GEVO, Inc. and FuelCell Energy.
The Zacks Alternative Energy industry can be fundamentally segregated into two sets of companies. While one group is involved in the generation and distribution of alternative energy and electricity from sources like wind, natural gas, biofuel, hydro and geothermal, the other is engaged in the development, design and installation of renewable projects involving these alternative energy sources.
The industry also includes a handful of stocks that offer fuel cell energy solutions, which have gained popularity as an affordable clean energy lately. Per the International Energy Agency’s latest World Energy Investment report published in June 2024, global spending on clean energy technologies and infrastructure is on track to reach $2 trillion in 2024. This surely reflects the solid growth opportunities that the clean energy industry has to offer to its participants.
EV Market Boom to Boost Clean Energy: Electric vehicles (EVs) are playing a pivotal role in decarbonizing the transportation sector. Rising electrification, supported by government subsidies, tax rebates, grants, and incentives like carpool lane access, is encouraging more people to switch from gasoline-powered vehicles to EVs in the United States.
Additionally, declining battery costs are further driving growth in the U.S. EV market. Consequently, new electric car registrations totaled 1.4 million in 2023, registering more than 40% growth from 2022 (as per the International Energy Agency’s report).
Looking ahead, the U.S. EV market size is expected to register a CAGR of 6.6% between 2024 and 2029, as estimated by a report from Statista. Such an impressive outlook bolsters the prospects of clean energy stocks, which offer the largest electric vehicle charging network in the United States.
Rising Costs & Other Headwinds: The steadily rising cost of renewable installations in recent times has been posing a significant challenge for clean energy installers. In particular, the rising price of steel, which is used to make giant wind turbine blades, has been pushing up the cost of wind installation lately.
Apart from steel, the most significant mineral requirements in the wind industry are copper, zinc, manganese, chromium, nickel, molybdenum and rare earths. The average price of these seven metals has risen 93% between January 2020 and March 2023 (as stated by an IMF report). Resultantly, the levelized cost of electricity of a subsidized U.S. offshore wind project has increased almost 50% in 2023 from the 2021 level in nominal terms, according to a report published by BloombergNEF in August 2023.
Further, the fallout in the bilateral relationship with China can have a direct impact on the green energy industry. This is because China accounts for up to 90% of refining capacity for the so-called rare earth elements used in electric motors, wind turbine generators and other green energy products, per the Energy Transitions Commission. So, any deterioration in the relationship with China might impact the green energy supply chain in the United States, thereby impacting the alternative energy industry.
The Zacks Alternative Energy industry is housed within the broaderZacks Oils-Energy sector. It carries a Zacks Industry Rank #130, which places it in the bottom 48% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects.
Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few alternative energy stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
The Alternative Energy Industry has outperformed its sector as well as the Zacks S&P 500 composite over the past year. The stocks in this industry have collectively surged 55.6% in the past year against the Oils-Energy Sector’s 6.3% decline. The Zacks S&P 500 composite has gained 30.2% in the same time frame.
On the basis of the trailing 12-month EV/EBITDA ratio, which is commonly used for valuing alternative energy stocks, the industry is currently trading at 11.05 compared with the S&P 500’s 19.01 and the sector’s 3.60.
Over the past five years, the industry has traded as high as 13.51X, as low as 7.85X and at the median of 9.97X.
4 Alternative Energy Stocks to Buy
Excelerate Energy: Based in The Woodlands, TX, the company is a provider of floating liquefied natural gas terminals owned by energy tycoon George Kaiser. On Nov. 6, 2024, EE released its third-quarter 2024 results. Its net income for the third quarter increased sequentially, driven by lower operating costs across several regasification projects, higher gas sales margins and lower depreciation expense.
EE boasts a long-term (three-to-five year) earnings growth rate of 11.2%. The Zacks Consensus Estimate for the company’s 2025 sales is pegged at $2.29 billion, implying an improvement of 16.3% from the previous year’s estimated figure. EE currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FuelCell Energy: Based in Danbury, CT, the company develops and markets ultra-clean power plants that generate electricity with up to twice the efficiency of conventional fossil fuel plants with virtually no air pollution and reduced greenhouse gas emissions. On Nov. 15, 2024, the company announced a global restructuring of its operations in the United States, Canada and Germany with the aim to significantly reduce operating costs, realign resources toward advancing its core technologies and protect the company’s competitive position amid slower-than-expected investments in clean energy.
FCEL boasts a four-quarter average earnings surprise of 18.75%. The Zacks Consensus Estimate for the company’s fiscal 2025 sales implies an improvement of 83.7% from the previous year’s estimated figure. The company currently carries a Zacks Rank #2.
TXNM Energy: Based in Albuquerque, NM, TXNM is an energy holding company that delivers energy to homes and businesses across Texas and New Mexico. On Dec. 12, 2024, TNMP, a wholly-owned subsidiary of TXNM Energy, filed an unopposed settlement in its application with the Public Utility Commission of Texas (PUCT) for the approval of a System Resiliency Plan.
The settlement includes $565.8 million of capital investments over 2025 through 2027, reflecting 94% of TNMP's proposed plan investments. The settlement also encompasses $128.2 million of operations and maintenance expenses associated with several programs, including vegetation management and wildfire mitigation.
The stock holds a long-term earnings growth rate of 3%. The Zacks Consensus Estimate for the company’s 2024 sales implies an improvement of 11.5% from the previous year’s reported figure. The company currently carries a Zacks Rank #2.
GEVO Inc.: Based in Englewood, CO, it is a renewable chemicals and advanced biofuels company engaged in the development of biobased alternatives to petroleum-based products using a combination of synthetic biology and chemistry. On Dec. 12, 2024, Gevo announced that it is extending its joint development agreement with LG Chem. The agreement extension will accelerate the development and commercialization of GVO’s patented ETO technology.
GEVO boasts an earnings surprise of 10% in the last reported quarter. The Zacks Consensus Estimate for the company’s 2025 sales implies an improvement of 101.5% from the previous year’s estimated figure. The company currently carries a Zacks Rank #2.
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Excelerate Energy, Inc. (EE) : Free Stock Analysis Report
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