7 Ways to Invest in the Energy Storage Boom

Wayne Duggan

These are great ways to play solar energy.

Over the next seven years, Bank of America estimates energy storage costs will decrease by 50%, ushering in the next phase of the global transition to renewable energy. The firm estimates the energy storage market could grow 16% annually from 2020 to 2031 and continue to expand to $58 billion by 2040. Those projections may seem aggressive, but solar energy costs alone are on track to drop 70% from 2010 to 2020. Here are seven renewables, batteries and electrification stocks to buy to play the coming energy storage boom, according to Bank of America.

Sunrun (ticker: RUN)

Sunrun finances, installs and services U.S. residential solar installations. The majority of its installations are leased by customers. Analyst Julien Dumoulin-Smith says Sunrun has limited downside given its fundamental valuation, even based on conservative estimates for costs and deployments. Dumoulin-Smith says refinancing opportunities and preventative electrical outages in California during wildfire season could drive further market penetration. Sunrun recently reaffirmed its full-year 2019 guidance for between 16% and 18% deployment growth and net present value of $1.15 per watt. Bank of America has a "buy" rating and $25.50 price target for RUN stock.

Vivint Solar (VSLR)

Vivint is another U.S. leader in residential solar installations, leasing the majority of its panels to customers. Vivint shares recently traded below $6.60 even though Dumoulin-Smith says Vivint's PowerCo assets alone are worth about $7.30. He says Vivint shares are not pricing in long-term, attractive-margin growth prospects and a favorable low interest rate environment. Dumoulin-Smith says Vivint is well-positioned to capitalize on the next solar upgrade cycle triggered by a spike in electricity demand, potentially driven by electric vehicles. Bank of America has a "buy" rating and $14 price target for VSLR stock.

First Solar (FSLR)

First Solar is the largest vertically integrated U.S. solar manufacturer and is targeting 6 gigawatts of capacity by 2020. Dumoulin-Smith says First Solar produces a cadmium telluride-based solar panel that is differentiated from most competitors' silicon-based panels. First Solar has already reported 4.4 gigawatts of bookings in the first half of 2019, easing investor concerns about a booking slowdown. Dumoulin-Smith says pricing stability combined with backlogs at multiyear highs should drive margin and earnings upside relative to consensus estimates heading into 2020. Bank of America has a "buy" rating and $75 price target for FSLR stock.

NextEra Energy (NEE)

NextEra is the parent company of regulated utility Florida Power & Light and NextEra Resources, the world's largest wind and solar project operator. NextEra Energy also holds a majority ownership stake in yield co NextEra Energy Partners (NEP). Yield cos are solar asset holding companies that generate predictable cash flows for parent companies. Dumoulin-Smith says NextEra issued higher-than-expected guidance across all its subsidiaries at its recent analyst day event. NextEra is expecting between 6% and 8% earnings per share growth through 2022. Bank of America has a "buy" rating and $215 price target for NEE stock.

Albemarle Corp. (ALB)

Albemarle is a specialty chemical company that is also among the lowest-cost lithium producers in the world. Analyst Steve Byrne says lithium should see a huge boost in demand from EVs. Albemarle shares have taken a beating due to lower lithium prices, and the company has been pressured by investors to dial back lithium expansion plans and focus on free cash flow for now. Byrne says the lithium market remains uncertain in the near term, but Albemarle could now become cash flow-positive by 2021. Bank of America has a "buy" rating and $83 price target for ALB stock.

Atlantica Yield (AY)

Atlantica Yield is a yield co that owns a portfolio of renewable energy, power generation and electric transmission assets. Atlantica owns and operates 1.35 gigawatts of renewable generation capacity, electric transmission lines and water assets in the U.S., Mexico, South America, Spain, Algeria and South Africa. Algonquin Power & Utilities Corp. (AQN) increased its ownership stake to 48.5% earlier this year, providing $30 million in cash. Dumoulin-Smith says AQN will be Atlantica's near-term growth source, and the stock's 6.7% dividend yield is appealing. Bank of America has a "buy" rating and $29 price target for AY stock.

Clearway Energy (CWEN)

Clearway Energy is another yield co that owns and operates both renewable and conventional energy assets, generating roughly half its income and revenue from renewables. Dumoulin-Smith upgraded Clearway in August after the company cut its fiscal 2019 cash available for distribution guidance from $270 million to $250 million. Even after the CAFD cut, Dumoulin-Smith says Clearway should still keep its payout ratio at just 91%. Clearway should be able to pay its 4.4% yield without relying on credit, which is positive. Bank of America has a "buy" rating and $19 price target for CWEN stock.

Top energy storage stocks to buy:

-- Sunrun (RUN)

-- Vivint Solar (VSLR)

-- First Solar (FSLR)

-- NextEra Energy (NEE)

-- Albemarle Corp. (ALB)

-- Atlantica Yield (AY)

-- Clearway Energy (CWEN)



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