Strong upside potential: Morgan Stanley bets on these energy stocks

• Significant growth potential in renewable energies
• Balance sheets show huge growth for 2022, equities under recent pressure
• Huge addressable market for both companies in the medium and long term

According to TipRanks, Morgan Stanley analyst Andrew Percoco sees significant upside potential in two stocks in particular in the renewable energy sector: Stem and Sunnova Energy International.

Stem Stock: AI-driven enterprise platform with potential

The world leader in AI-based solutions and services for clean energy, Stem, offers the AI-driven enterprise platform Athena in addition to a product line of AI-supported battery systems. With Athena, companies have the opportunity to optimize the connections between on-site power generation and the power grid and stored energy. In this way, companies can save up to 30 percent on energy costs. Stem currently has Athena in 75 countries worldwide and deploys it at more than 200,000 solar sites. By 2050, Stem estimates its addressable market at up to $1.2 trillion.

In 2022, Stem was able to increase its sales by 186 percent compared to the previous year. The company set a new sales record with total sales of $363 million, but fell short of analysts’ expectations. Since the beginning of the year, the Stem share price has fallen by around 47 percent. The stock is currently trading at $4.69 (closing price April 14, 2023).

The share is currently a long way from the highs in February and June 2021, but analysts see enormous upside potential in the paper: Among the nine ratings recorded on TipRanks, seven are “buy”, one is “hold” and one is “sell”. . The middle target price is $12.06, around 130 percent above the current price.

The target price given by Andrew Percoco is $12. In his rationale, the Morgan Stanley analyst writes, “We continue to see Stem’s software-focused strategy as a good way to play in the energy storage market and as a long-term growth driver that is grossly underestimated at the current 20 percent discount to the energy storage competition. ” Percoco further justifies the overweight position in the paper with improvements in the battery supply chain and attractive cross-sell opportunities between the solar monitoring business and the “legacy storage business”.

The company does not see itself endangered by the recent bank collapse of some regional banks in the USA. In a statement released in mid-March, Stem said he held less than 5 percent of Silicon Valley Bank’s cash and short-term investments. The closure of the bank therefore has no impact on business activity or liquidity.

Sunnova share: clear buy recommendation despite short-term risks

In addition to Stem, Andrew Percoco also recommends buying Sunnova stock. The company offers comprehensive services related to solar energy. In addition to the installation of roof panels, house power systems and power storage units, the portfolio also includes a comprehensive maintenance and repair service as well as insurance and financial assistance.

Percoco justifies its choice with the strong long-term growth prospects in a clearly underserved market in which Sunnova is active. Only four percent of US households have been covered so far. There are short-term risks, such as a significant drop in demand due to political changes in California or the potentially volatile financing environment, which could have a (short-term) negative impact on the share price. “Nevertheless, we see an attractive buying opportunity here for those willing to accept short-term volatility as the stock is trading below the value of its existing assets,” the Morgan Stanley analyst wrote in his review, according to TipRanks.

The 13 ratings given by Wall Street analysts also paint a clear picture on TipRanks: Eleven analysts recommend overweighting and two recommend holding the stock. At USD 33, the average price target for the Sunnova share certificate is currently around 108 percent above the share price at USD 15.85 (closing price on April 14, 2023). Although the share has lost 12 percent since the beginning of the year, the analysts’ assessments paint an optimistic picture of the company, which apart from short-term volatilities offers enormous growth potential. In the last quarter of 2022, Sunnova was able to exceed analysts’ expectations with both a 200 percent increase in sales and an enormous increase in customers (around 33,000 new customers in the fourth quarter). Loss per share was reduced to 18 cents per share, compared to 44 cents per share in the same quarter last year.

Plug Power share price target capped

The positive analyst ratings point to lucrative investment opportunities in the field of renewable energies, as the topic is gaining both social and political importance. With the move away from fossil fuels, there are tremendous growth opportunities for green energy companies.

At the beginning of April, Andrew Percoco had therefore also upgraded numerous shares in the industry, but the Morgan Stanley analyst downgraded two papers: First Solar and Plug Power.
Since the hydrogen company Plug Power is not yet profitable and the growth in sales and profit margin fell short of expectations, the analyst even cut the target price of the previous “Wall Street darling” Plug Power by 57 percent, according to wallstreet:online.

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