Clearway Energy Group LLC’s subsidiary, Clearway Energy, Inc. (CWEN), is one of the largest renewable energy owners in the United States, with more than 4,200 net MW of installed wind and solar generation projects. Over the past three months, the stock of the Princeton, N.J.-based company has gained 11.6% to close Friday’s trading session at $30.51. Investors’ optimism around the company’s acquisition of Mt. Storm on April 26—a 264 MW asset in Grant County, West Virginia—was the primary driver of the performance.

The demand for wind and solar energy has increased steadily over the past few months, and renewables were the second-most prevalent U.S. electricity source last year. 

However, CWEN’s shares have lost 5.9% over the past six months and 4.5% so far this year. Its net income has declined significantly in the latest quarter. In addition, the company anticipates lower volumetric sales on a normalized weather basis at the thermal segment through 2021. So, its near-term prospects look uncertain.

Here are the factors that we think could influence CWEN’s performance in the coming months:

High Dividend Yield

CWEN has been paying dividends consistently each quarter for the last five years. Its dividend payouts have grown at   7.8% and 3%  CAGRs over the past five years and three years, respectively. It declared a $0.33 per share dividend, payable on September 15, up 1.7% from the previous quarter’s dividend amount. This translates to a $1.34 annual dividend and a 4.39% yield. CWEN’s four-year average dividend yield is 5.01%. Furthermore, the company said it's on track to achieve the upper end of its 5% to 8% annualized dividend growth per share by year’s end.

Mixed Financials

For the second quarter, ended June 30, 2021, CWEN’s total operating revenues increased 15.5% year-over-year to $380 million. The company’s cash available for distribution (CAFD) came in at $155 million, representing an 80.2% year-over-year rise. However, its net income decreased 57.9% year-over-year to $32 million. In addition, its net income from its  Renewables segment decreased 50% year-over-year to $27 million. Its EPS came in at $0.30, down 26.8% year-over-year.

Poor Profitability

In terms of forward trailing-12-month net income margin, CWEN’s 3.66% is 68.8% lower than the 11.72% industry average. Likewise, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 2.41%, 1.97%, and 0.38%, respectively, are lower than the  9.31%, 3.95% and 2.52% industry averages. Also, its 0.11% trailing-12-month asset turnover ratio is 47.6% lower than the 0.21% industry average.

POWR Ratings Don’t Indicate Enough Upside

CWEN has an overall C rating, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. CWEN has a C grade for Quality, which is consistent with its lower-than-industry profitability ratios. The stock has a D grade for Momentum, which is in sync with its 5.9% loss over the past six months and 4.5% loss year-to-date.

CWEN has a D grade for Value also. This is justified given its 9.91x forward EV/S and 40.01x forward EV/EBIT, which are higher than the  4.57x and 20.35x industry averages. Moreover, it has an F grade for Sentiment, which is in sync with unfavorable analyst sentiment.

CWEN is ranked #23 of 57 stocks in the Utilities – Domestic industry. Click here to see the additional POWR Ratings for CWEN (Growth and Stability).

Better than CWEN: Click here to access one top-rated stock in the same industry.

Bottom Line

CWEN is expected to witness increasing demand for its services because governments worldwide are taking measures to transition to a renewable-energy-driven sustainable future. However, even though its top line increased marginally in the second quarter on a year-over-year basis, its bottom line declined significantly. Also,  Wall Street analysts expect the stock to hit $28.71 in the near term, which indicates a potential 5.9% decline. So, we think it’s wise to wait before scooping up its shares.

CWEN shares were unchanged in premarket trading Monday. Year-to-date, CWEN has declined -2.15%, versus a 18.94% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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