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The world is racing toward a green energy transition to cut carbon emissions, with renewable energy demand set to soar. As we move away from fossil fuels, sustainable alternatives promise a cleaner future. The International Energy Agency (IEA) notes a 40% rise in clean energy investments since 2020, a trend likely to continue as governments push for climate goals.
This transition opens up significant opportunities for companies like Kosmos Energy Ltd. (KOS), First Solar, Inc. (FSLR), and Bloom Energy Corporation (BE). Kosmos Energy is making strides in sustainable oil and gas, Bloom Energy is a leader in solid oxide fuel cells for distributed power generation, and First Solar is a key player in photovoltaic technology.
Clean energy companies, despite past challenges, offer lucrative investment opportunities with substantial growth prospects. Earlier this month, in Barron's energy expert roundtable, analysts identified them as undervalued gems poised for substantial appreciation. They foresee these stocks possibly doubling or even quintupling, signaling a compelling opportunity for investors eyeing significant returns.
With consensus ratings of “Buy” or better and notable upside potential, these three stocks are worth exploring for investors looking to add exposure to the green energy sector.
Stock #1: Kosmos Energy
Founded in 2003, Kosmos Energy Ltd. (KOS), with a market cap of $2.8 billion, is a full-cycle, deepwater, independent oil and gas exploration and production company focused along the offshore Atlantic Margins. Based in Dallas, its key assets include production offshore Ghana, Equatorial Guinea, and the Gulf of Mexico, as well as world-class gas projects offshore Mauritania and Senegal. They also pursue a proven basin exploration program in Equatorial Guinea and the Gulf of Mexico.
Shares of Kosmos Energy have pulled back 12.9% over the past 52 weeks, but has regained some ground from its early March lows.
Priced at 7.90 times forward earnings, the stock trades at a discount to the oil and gas exploration and production industry median and its own five-year average, as well.
Shares of Kosmos Energy gained after it released its fiscal Q1 earnings results on May 7. The company's revenue of $419.1 million, up 6.4% year over year, was in line with consensus estimates, while its adjusted EPS of $0.21, up 31.3% annually, beat forecasts by 37%. The company produced approximately 66,700 barrels of oil equivalent per day (boepd), a 13% increase year over year.
The company is advancing key projects like Jubilee Southeast, Winterfell, and the Greater Tortue Ahmeyim LNG project. These efforts aim to boost production by nearly 50% by the end of 2024, enhancing future revenue and profitability.
Kosmos Energy is pushing for clean energy transitions by emphasizing low-cost, lower-carbon oil production in Ghana, the Gulf of Mexico, and Equatorial Guinea. It is also expanding natural gas projects offshore Mauritania and Senegal, aiming to raise gas production from 10% to 25% of its portfolio. Kosmos is committed to maintaining top-quartile carbon intensity, aligning with sustainability goals, and addressing climate change.
For fiscal 2024, Kosmos Energy projects production to range between 71,000 and 77,000 boepd. Capital expenditure is expected to be between $700 million and $750 million.
Analysts tracking Kosmos Energy expect the company’s profit to be $0.72 per share in fiscal 2024 and improve 30.6% year over year to $0.94 per share in fiscal 2025.
During Barron's virtual roundtable, Hotchkis & Wiley's energy-focused portfolio manager, Stan Majcher, highlighted Kosmos Energy as a notable investment. He praised Kosmos for its offshore LNG assets poised to generate significant free cash flow, aiding in debt reduction and potential share buybacks. Kosmos offers a 20% free cash flow yield at its current valuation, making it an attractive prospect for investors looking for substantial returns.
Kosmos Energy stock has a consensus “Strong Buy” rating overall. Out of the seven analysts offering recommendations for the stock, six suggest a “Strong Buy,” and the remaining one gives a “Hold” rating.
The average analyst price target of $8.37 indicates a potential upside of 45.3% from the current price levels. However, the Street-high price target of $10 suggests a notable 73.6% upside potential.
Stock #2: First Solar
Founded in 1999, Arizona-based First Solar, Inc. (FSLR), with a market cap of $26.9 billion, oversees the entire solar energy business lifecycle, from production to recycling. Specializing in advanced thin film photovoltaic (PV) modules, First Solar's technology provides eco-efficient solutions that outperform traditional crystalline silicon (c-Si) PV panels. These modules deliver high performance and contribute to reducing carbon footprints, aligning with global initiatives against climate change. First Solar has committed to powering 100% of its global manufacturing operations with renewable energy by 2028 and achieving Net Zero by 2050.
Shares of First Solar have surged 45% on a YTD basis, significantly outperforming the broader S&P 500 Index’s ($SPX) 10.4% returns. FSLR has gained 56.4% over the past six months, again outshining the SPX’s 15.6% return over the same time frame.
Priced at 14.48 times forward earnings, the stock trades at a discount to its industry median and its own five-year average.
First Solar blew past expectations on both top and bottom lines with its Q1 earnings released on May 1, helped by resilient demand for solar energy. Its net sales surged 44.8% annually to $794.1 million, surpassing estimates by 9.5%. The company’s EPS of $2.20 marked a remarkable 450% annual growth, and exceeded projections by 15.8%.
First Solar smashed its own module production record, hitting 3.6 GW, marking a 42.5% surge from last year. It is scaling up in 2024, expanding manufacturing in Alabama, Louisiana, and Ohio. CEO Mark Widmar projects nameplate capacity exceeding 21 GW this year, and is aiming for over 25 GW by 2026.
In fiscal 2024, First Solar expects net sales between $4.4 billion and $4.6 billion and EPS to range between $13 and $14. Its adjustments to the net cash balance reflect increased capital expenditures for capacity expansions, now projected between $600 million and $900 million. Capital expenditures are expected to be between $1.8 billion and $2 billion to boost growth and meet rising product demand.
Analysts tracking First Solar expect the company’s profit to reach $13.56 per share in fiscal 2024, up 75.2% year over year, and improve another 55.5% to $21.08 per share in fiscal 2025.
Lucas White, a natural resources and climate-focused portfolio manager at GMO, told Barron’s that First Solar is a high-quality company within the solar industry. White noted that despite the volatility and commoditized nature of solar panel manufacturing, First Solar's scale and competitive edge position it well for long-term success. The company's alignment with the broader clean energy transition and its potential for a significant rerating were key factors in White's positive outlook.
First Solar stock has a consensus “Strong Buy” rating overall. Out of the 30 analysts offering recommendations for the stock, 24 suggest a “Strong Buy,” one advises a “Moderate Buy,” and the remaining five give a “Hold” rating.
Although First Solar trades at a premium to the average analyst price target of $229.85, the Street-high price target of $356 suggests a notable 42.5% upside potential.
Stock #3: Bloom Energy
Bloom Energy Corporation (BE) designs, manufactures, sells, and installs solid-oxide fuel cell systems for on-site power generation in the U.S. and internationally. Incorporated in 2001 and headquartered in San Jose, California, the company has been focusing on innovative offerings like Be Flexible, Combined Heat, and Power Systems to ensure it meets the rising demand for clean energy solutions. Bloom Energy sells its products to utilities, data centers, hospitals, retail, and manufacturing.
Valued at $3.8 billion by market cap, shares of the fuel cell renewable energy pioneer have surged 6.3% on a YTD basis and nearly 20% over the past six months.
Priced at 2.18 times forward sales, the stock trades at a discount to its peers like Plug Power Inc. (PLUG) and Ballard Power Systems Inc. (BLDP).
In its Q1 earnings results on May 9, Bloom Energy reported revenue of $235.3 million, while its non-GAAP loss narrowed 22.7% annually to $0.17 per share. Bloom Energy's technology remains a standout, driving expansion into diverse global markets and industries. Strategic partnerships, like those with SK Ecoplant, enhance Bloom's foothold in South Korea and pave the way for international growth and technological advancement.
Founder, Chairman and CEO of Bloom Energy, KR Sridhar, said, “We are seeing strong market interest, increasing momentum, and robust commercial activity across diverse end markets. In addition to data centers, we view AI hardware supply chain industries as a good growth opportunity for Bloom, both in the US and in Asia. Our customer wins on islanded-power mode without need for grid interconnection demonstrates an ideal solution for customers seeking time-to-power advantages.”
For the full year, Bloom Energy forecasts revenue to range between $1.4 billion and $1.6 billion, non-GAAP gross margin of approximately 28% and non-GAAP operating income between $75 million and $100 million. Analysts tracking Bloom Energy expect the company’s loss to narrow 49% to $0.26 per share in fiscal 2024 and then swing to a profit of $0.02 per share in fiscal 2025.
Morgan Stanley's (MS) global head of sustainability and clean-tech research, Stephen Byrd, highlighted Bloom Energy's pivotal role in the clean energy sector during the Barron’s roundtable, particularly in tackling escalating electricity expenses with its economical power solutions for businesses. Byrd also underscored Bloom's potential for substantial stock rerating through major contracts with data centers, praising its flexibility in utilizing natural gas, biogas, and hydrogen.
Shares of Bloom Energy soared recently after Wells Fargo & Company (WFC) praised rising demand for Bloom Energy's fuel-cell generators for cloud data centers, raising the price target to $14. RBC Capital also reaffirmed its "Buy" rating with a $14 target.
Bloom Energy stock has a consensus “Moderate Buy” rating overall. Out of the 21 analysts offering recommendations for the stock, seven suggest a “Strong Buy,” three advise a “Moderate Buy,” 10 say “Hold,” and the remaining one gives a “Moderate Sell” rating.
Although BE is trading roughly flat with the mean analyst price target of $15.83, the Street-high target price of $29 implies that the stock can rally as much as 84.4%.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
