The world is now waking up to the undeniable economic cost of climate change. As a result, the world over, governments are crafting policies and committing trillions of dollars to combating harmful effects of greenhouse emissions.
In one such move, the U.S. Senate recently passed a sweeping US$369 billion bill, the most aggressive climate investment ever taken by Congress, to support clean energy initiatives and lower carbon pollution. The key highlight of the bill includes extension of solar and wind tax credits, incentives for new technology previously not eligible for tax credits, and incentives for domestic manufacturing.
California-based ChargePoint (CHPT) is a leading electric vehicle (EV) charging network. The company’s hardware product lineup includes solutions across home, commercial, and fast-charging applications. It derives the bulk of its revenue from the United States.
The EV charging industry comprises three main categories of companies: hardware providers, integrators (software providers), and asset owners. ChargePoint is a leading provider of networked electric vehicle, or EV, charging hardware and software.
“We view ChargePoint’s first-mover advantage (founded in 2007) and integrated hardware-software approach as contributing to its success in the alternating current (AC) market,” says a Morningstar equity report, stressing the company is in the process of aggressive geographic expansion.
Apart from public charging, ChargePoint also competes in the private charging market, such as workplace and fleet. “ChargePoint is the unquestioned market leader in workplace given the prevalence of AC charging,” says Morningstar equity analyst, Brett Castelli, who puts the stock’s fair value at US$13.
Leading solar technology and energy services provider, SunPower (SPWR) offers fully integrated solar, storage, and home energy solutions to customers primarily in the United States and Canada. The company’s sales channels include a network of both installing and non-installing dealers and resellers that operate in residential and commercial markets.
SunPower has undergone a number of strategic changes in recent years to refocus on the U.S. residential solar market. These changes include divesting from the less profitable commercial segment and making tactical acquisitions such as residential solar installer Blue Raven Solar.
“Historically, SunPower has largely relied on third-party dealers to sell and install its products, [however] after the acquisition of Blue Raven Solar, we estimate approximately 25% of its installations will be through its direct business,” says a Morningstar equity report.
Further, the company is sharply focused on aggressively pursuing the U.S. residential market. “With less than 5% of the addressable market penetrated, there is a long runway of growth opportunity,” stresses Castelli, who recently raised the stock’s fair value to US$24 from US$20, following strong second-quarter results, noting that “the primary driver of our fair value estimate increase is expected upside from the Inflation Reduction Act of 2022, if passed.”
Global operator of clean energy assets, Brookfield Renewable (BEP) owns hydroelectric, wind, solar, and storage facilities in North America, South America, Europe, and Asia. The company invests in assets directly, with institutional partners, joint venture partners, as well as through other arrangements.
Historically, Brookfield Renewable’s portfolio has been sharply tilted toward hydro generation. However, in recent years, the company has been transitioning towards wind and solar, given rapid growth of these sectors. “Hydro has decreased from approximately 80%-85% of the company five years ago to approximately 50% today,” says a Morningstar equity report, further noting that hydro may continue to decline as a percentage of cash flow over time, “given relatively limited growth opportunities when compared with wind and solar.”
Apart from renewable energy assets, Brookfield Renewable made significant investment this year in broader energy transition asset classes such as “carbon capture as well as traditional fossil fuel power generation assets with plans to decarbonize,” says Castelli, who appraises the stock’s fair value to be US$34. The company is aiming for a geographic split that has 75% of its portfolio in developed markets and 25% in emerging markets over the long term.