TerraForm Power (TERP) is priced at a mere $10, yet the company appears to be a budding superstar.
TERP soared about 30% less than a year after going public in the spring of 2014. TerraForm Power’s stock declined quickly after the initial climb as its former parent was hit with a series of devastating financial setbacks. These issues hampered TERP’s finance expansion plans, yet Brookfield Asset Management stepped in to right this wayward ship.
Fast forward to 2018, and TerraForm Power has a stable financial situation that has positioned the company for steady growth. The company’s recent growth is partially attributable to a series of acquisitions that transformed TERP into a legitimate renewable energy power player.
TERP is a solar and wind power company which has enjoyed quite the turnaround in 2018 despite its stock still being valued at well below its 52-week high of $14.20. It has an increasingly-profitable legacy portfolio powered through driven-out costs. TERP executives intend to stimulate cash flow upwards of 7 cents per share through a $25 million expense reduction plan. The company’s recent foray into the Western European market has set a formidable foundation for future success. TERP is also establishing relationships with North American renewable power developers, so capital is available to fund planned projects and major acquisitions. If TERP minority partners are bought out and the company’s wind farms are re-powered with more powerful turbines, the company will enjoy substantial cash flow stemming from its legacy portfolio.
TERP executives have established a detailed plan to amplify internal growth and organic growth. The company’s cash available for distribution (CAFD) will be divvied out to shareholders in the form of dividends. TERP’s CAFD will likely rise to the $250 million mark by 2022, equating to about $1.20 per share. If such growth occurs, TERP will boost its dividend to upwards of 8% per year, providing double digit yearly returns. The company will pay about 85% of CAFD in dividends in the years to come after making the mistake of paying out nearly 100% of CAFD in the past. The reduction in CAFD paid in dividends leaves the business with some margin for err or safety, depending on how you see it.
This alternative energy provider is in acquisition mode. Company executives have made no secret of the fact that TERP is looking to bring new companies into the fold beyond the recently-acquired Saeta Yield. The company shelled out a whopping $1.12 billion for Saeta Yield in an attempt to extend operations throughout the Western Europe market. The deal increased TerraForm’s renewable power capacity generation by 40%. Look for TERP to make even larger acquisitions in the years to come. TERP might even reach the point where it acquires so many mature assets that developers are empowered to fund construction projects.
TERP has had a rough couple years, but the company is poised to increase in value in the short-term and long-term. This year represents the start of TERP’s growth strategy. The company’s dividend will likely rise at a single-digit pace across the next half-decade. Though it would be foolish to completely neglect TERP’s troubled history, the bottom line is its financial struggles are in the rearview mirror.
TERP is now under solid management with a detailed plan for success. The company has a 6.5% forward yield based on its dividend target of 76 cents per-share. It is clear TERP has the financial backing necessary to make numerous acquisitions, capture market share across the globe and continue growing across posterity. This growth stock should be in your portfolio for the long haul.
Regards,
Ethan Warrick
Editor
Wealth Authority
