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The green energy sector is experiencing rapid growth, fueled by growing global concerns about climate change, supportive government policies and ongoing technological innovation. This growth presents significant investment opportunities, but also significant challenges. While large-cap companies often get the majority of media attention, there are many promising clean energy stocks with growth potential waiting to be discovered. While these companies are making significant progress in renewable energy projects, they maintain a relatively low profile in mainstream financial news, potentially presenting attractive opportunities for investors looking to find hidden gems.

Unlocking the value of green energy

The attractiveness of the green energy sector is undeniable. However, this rapid expansion masks serious challenges for investors. Renewable energy projects require significant upfront capital and often require long project lead times before generating significant revenue, contributing to market volatility. The situation is exacerbated by intense competition and constantly changing conditions of government regulation and subsidies. These are factors that can seriously affect a company’s profitability and long-term prospects. These inherent risks and the long road to profitability may mean that some well-positioned companies remain relatively unnoticed in the sector.

Hannon Armstrong: Funding a Sustainable Future

Hannon Armstrong Sustainable Infrastructure Capital, Inc. New York Stock Exchange: HASI is a specialist climate solutions financier offering investors a unique opportunity to participate in the transition to a more sustainable economy. Unlike traditional renewable energy companies that develop and implement projects, HASI provides the critical capital needed to make those projects a reality. Instead of direct project development, this focus on financing gives HASI a distinct advantage by reducing its exposure to operational risks associated with construction and operations. In addition, HASI’s targeted investments include renewable energy projects, energy efficiency and sustainable infrastructure, giving investors access to a diversified portion of the ESG sector.

HASI’s Q2 2024 (Q2 FY 2024) earnings report showed strong financial performance, as evidenced by Q2 EPS of $0.63, well above the consensus estimate of $0.51 . Moreover, revenue for the same quarter reached $94.52 million, significantly exceeding Hannon Armstrong analyst community expectations and exceeding revenue estimates of $30.97 million.

Hannon’s trailing 12-month return on equity (ROE) is an impressive 11.53% and its net margin is 59.56%, which beats most traditional utility companies. The company’s success goes beyond its core business. HASI is actively strengthening its market position through strategic partnerships and ventures. For example, its participation in the financing of Pivot Energy’s distributed generation portfolios demonstrates HASI’s commitment to expanding its reach and influence in the sustainable energy sector.

With a Buy consensus rating from 13 analysts and a strong MarketRank™ rating of 98%, investor sentiment is largely positive. HASI offers a compelling annual dividend of $1.66 per share with a dividend yield of 5.93%, another factor attracting investors to the growth company. While HASI’s payout ratio is 93.26%, suggesting the company is paying out more in dividends than it earns, earnings estimates suggest this ratio will level out as the company continues to grow.

Brookfield Renewable Partners: Diversified Powerhouse

Brookfield Renewable Partners New York Stock Exchange: BEP boasts a geographically diversified portfolio of renewable energy generation assets in North America, Colombia and Brazil. Its diverse technology approach, which includes hydroelectric, wind, solar, distributed generation and pumped storage technologies, as well as renewable natural gas, carbon capture and storage, biomass processing and cogeneration projects, significantly reduces dependence on any single energy source.

Brookfield Renewable Partner’s earnings report for the third quarter of fiscal 2024 (3QFY24) paints a mixed picture. Although funds from operations (FFO) reached $278 million, up 11% year over year, they fell short of Brookfield’s analyst community expectations. This discrepancy is due to non-cash accounting adjustments, including the revaluation of hedging instruments to market.

While these non-cash items impact reported earnings per share (EPS), they are less indicative of Brookfield’s underlying operating performance and its long-term prospects. In the renewable energy sector, where long-term contracts and project life cycles are key, FFO often provides a better measure of a company’s ability to finance operations and future growth.

BEP’s growth prospects remain strong. The company is actively expanding its development portfolio, actively commissioning new capacities and concluding long-term contracts. Eight analysts have an average price target of $31.89, which represents significant upside potential. While BEP’s debt-to-equity ratio of 0.93 may raise some concerns, its return on equity of 0.24% and net margin of 1.16% suggest a promising financial outlook.

Find your place in green energy

Choosing between Brookfield Renewable Partners (BEP) and Hannon Armstrong (HASI) depends primarily on your investment strategy and risk tolerance.

Income-oriented investors

HASI’s high dividend yield (5.93%) makes it especially attractive to investors focused on receiving stable income. While the payout ratio (93.26%) based on trailing 12 months of earnings is currently above earnings, earnings forecasts for the next fiscal year suggest a more robust payout ratio. The lower beta value (1.93) also implies less volatility compared to BEP. This is further reduced because Hannon Armstrong’s business model involves financing a diversified portfolio of projects, reducing the risk of being dependent on the success of any single project. This is also confirmed by the high net profit margin (59.56%) and return on equity (11.53%).

Growth-oriented investors

Brookfield Renewable Partners offers significant upside despite its recent EPS failure. Analysts forecast significant upside potential, with an average price target of $31.89. BEP’s diversified portfolio and aggressive expansion strategy support its growth potential. While the higher beta (0.93) implies increased volatility compared to HASI, the significant projected growth makes it attractive to those seeking higher returns at a higher level of risk.

Balanced Investors

Investors looking for a balance between income and growth may find both stocks attractive. HASI can provide a stable income stream, while BEP offers the potential for capital growth.

Harvest of the green energy revolution

Brookfield Renewable Partners and Hannon Armstrong Sustainable Infrastructure present distinct but complementary investment strategies in the green energy sector. BEP’s diversified portfolio and operational focus balances revenue and growth potential. At the same time, HASI’s finance-focused approach provides access to a wide range of climate solutions with potentially higher returns. By carefully assessing their strengths and risks, investors can strategically build diversified portfolios designed to benefit from the green energy revolution.

Before you consider working with Brookfield Renewable Partners, you need to hear this.

MarketBeat tracks Wall Street’s top-rated and best-performing analysts daily and the stocks they recommend to their clients. MarketBeat identified five stocks that top analysts are quietly whispering to their clients to buy now, before the broader market takes hold… and Brookfield Renewable Partners wasn’t on the list.

While Brookfield Renewable Partners currently has an analyst rating of Buy, the top-rated analysts think these five stocks are Outperform Buys.

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