After much debate, the U.S. Senate passed Democrats’ $430 billion climate, healthcare, and tax bill on Sunday, August 7. The bill also called the Inflation Reduction Act, allocates billions of dollars to clean energy initiatives. It also aims to reduce prescription drug prices and includes a new 15% minimum tax on large corporations. The bill will now head to the House for voting, where it will be signed into law once passed. In this article, we will look at three clean-energy companies that stand to benefit from the new climate bill – Sunrun (NASDAQ: RUN), Plug Power (NASDAQ: PLUG), and ChargePoint Holdings (NYSE: CHPT).
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This bill, which includes nearly $370 billion of investments toward clean energy and climate initiatives, was called “the boldest climate package in US history,” by Senate majority leader Chuck Schumer. It includes tax credits for consumers to encourage the adoption of renewable energy, like residential solar panels. It also includes incentives for companies to boost the domestic production of solar panels, wind turbines, and batteries. Overall, companies in the solar, wind, and electric vehicles space, including First Solar (FSLR), NextEra Energy (NEE), Tesla (TSLA), SunPower (SPWR), and Enphase Energy (ENPH), are expected to benefit from the Inflation Reduction Act.
Sunrun
Sunrun is one of the leading home solar panel and battery storage providers. The company recently delivered better-than-anticipated Q2 results, with revenue growing nearly 46% to $585 million. Sunrun believes that there is massive growth potential in the solar industry, given that only 4% of the 77 million addressable homes in the U.S. have solar products.
In an interview with Yahoo Finance about the Inflation Reduction Act, Sunrun’s CEO Mary Powell stated, “We’re sitting on the precipice of what could be the most impactful climate legislation of our lifetimes.”
Last week, Barclays analyst Christine Cho initiated coverage of Sunrun with a Buy rating and a price target of $46. Cho assigned the North American clean technology space a Positive view and feels that Sunnova Energy (NOVA) and Sunrun are best positioned within the residential solar space category.
Cho believes that the solar sector is “as attractive as it’s even been and this secular growth trend will continue.” The analyst opines that the Inflation Reduction Act “provides tailwinds after several setbacks” for the sector.
Overall, the Street has a Strong Buy consensus rating for Sunrun backed by 12 Buys and two Holds. The average price target of $44.86 implies 34.96% upside potential from current levels.
Plug Power
Shares of Plug Power, a leading hydrogen fuel-cell solutions provider, have surged more than 43% over the past month due to favorable developments related to the climate spending bill.
Plug Power recently announced an agreement with New Fortress Energy Inc. (NFE) to develop a 120-megawatt industrial-scale green hydrogen plant near Beaumont, Texas. This facility is expected to be one of the largest green hydrogen plants in North America.
Plug Power is scheduled to announce its second-quarter results on August 9, and investors will be keen to know management’s opinion on how the company could benefit from the Inflation Reduction Act.
In late June, J.P. Morgan analyst Bill Peterson cut his price target for Plug Power stock to $28 from $32 but maintained a Buy rating. The analyst revised his estimates to reflect revenues being “more back half-weighted” this year than previously expected, due to the notable seasonality of the material handling and electrolyzer businesses.
Peterson also anticipates continued margin pressures in the company’s fueling and service businesses over the near term due to supply constraints and soaring natural gas prices. That said, the analyst continues to believe in Plug Power’s growth story based on strong execution despite near-term pressures, and a “clear roadmap to scaling up revenue and improving margins.”
Overall, the Street is cautiously optimistic on Plug Power, with a Moderate Buy consensus rating based on 11 Buys and four Holds. At $33.57, the average price target suggests 33.27% upside potential from current levels.
ChargePoint Holdings
ChargePoint operates one of the largest networks of electric vehicle (EV) charging stations in North America and Europe. To encourage the adoption of EVs, the Inflation Reduction Act includes an extension of tax credits of up to $7,500 till 2032 on the purchase of a new EV. It also includes a tax credit of $4,000 on the purchase of a used EV, which is priced at $25,000 or less, and is subject to certain other requirements.
Following last month’s analyst event at ChargePoint’s headquarters, J.P. Morgan’s Peterson highlighted the company’s “attractive and comprehensive strategy built for the long term.” The analyst believes that the company’s recurring revenue model will continue to deliver results as EV adoption increases and gains mass market penetration in passenger and commercial segments.
Peterson views ChargePoint as a “key beneficiary and market leader” in the EV charging space and feels that the stock’s risk-reward profile is attractive for long-term investors. In line with his bullish thesis, Peterson reiterated a Buy rating on ChargePoint stock with a price target of $18.
On TipRanks, ChargePoint scores a Moderate Buy consensus rating that breaks down into eight Buys and four Holds. The average price target of $19.13 implies 19.12% upside potential from current levels.
Conclusion
Soaring fuel prices have already pushed governments across the world to increase their focus on renewable energy sources and electric vehicles. If the Inflation Reduction Act is passed by the House, then it will be a major boost for companies in the U.S. renewable energy and EV space.
