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The renewable energy industry drew plenty of interest in 2023, with investments hitting the $1.8 trillion mark - a solid 17% increase from the previous year. But even as governments and corporations scramble to reach climate change goals, alternative energy stocks have been struggling in the current macroeconomic environment. So, in the midst of this green energy rush, Enphase Energy (ENPH) and Plug Power (PLUG) have found themselves sitting out the stock market rally over the past year.
While loss-making Plug Power rattled investors with a “going concern” warning, Enphase Energy has been under steady pressure from high interest rates, as its solar panel projects rely heavily on financing. However, after a rough ride for both stocks, analysts have picked a clear favorite of the two. Here's a closer look.
The Case for Enphase Energy Stock
With a market cap of $16 billion, Enphase Energy (ENPH) is a big name in the solar energy game. They're all about making solar power more efficient and user-friendly, offering tech like microinverters and energy storage systems to both homeowners and business customers.
While the broader S&P 500 Index ($SPX) has rallied, ENPH has been steadily declining. The stock is down 38.5% over the past 52 weeks, and ENPH has given up more than 8% so far in 2024.
At current levels, though, Enphase stock is priced at a discount. The stock's forward price/earnings ratio of 35.92 and forward price/sales of 10.15 are both lower than its 5-year average multiples.
The fourth quarter of 2023 was a tough one for Enphase, as non-GAAP earnings per share dropped to $0.54 from $1.51 the year before. Revenue missed Wall Street's estimates, with a decrease to $302.6 million from $724.7 million. However, Enphase was upbeat about the prospect of recovering demand in Europe, and predicted stronger revenue starting in Q2.
Expectations for an upcoming inflection point is apparent in the consensus EPS forecasts for Enphase, as well. The company's bottom line is expected to decline 36.7%, on average, in fiscal year 2024, before rebounding 90.4% to $3.98 in fiscal 2025.
Out of 34 analysts throwing in their two cents, Enphase has landed a “moderate buy” rating overall. This includes 18 “strong buys,” 3 “moderate buys,” 12 “holds,” and 1 “moderate sell.” The average target price is pegged at $125.38, suggesting a potential 4.4% upside from here.
The Case for Plug Power Stock
Plug Power (PLUG) is making waves in the hydrogen and fuel cell tech scene, focusing on creating hydrogen fuel cell systems that could replace the usual batteries in electric-powered equipment and vehicles. They've got a lineup of tech that includes fuel cells, hydrogen fueling stations, and even their own green hydrogen production.
Over the past year, PLUG has lost nearly 70% of its value, and now sports a market cap of $2.1 billion. Year-to-date, the stock is down 34%.
The stock currently trades at 2.08x forward sales and 1.36x expected 2025 sales. While these multiples may seem attractive, PLUG's ongoing losses and negative gross margins raise serious doubts about its ability to justify such valuations.
In the fourth quarter of 2023, PLUG reported an adjusted loss of $0.64 per share, missing the mark compared to what analysts expected. This isn't new for them, as they've had a hard time hitting those per-share estimates in the past. Revenue arrived at $222.20 million for the quarter, up a bit from last year, but still short of the expected $234.21 million.
On the plus side, “our focus the last quarter was solving the going concern, which we have done,” said CFO Paul Middleton on the earnings call.
Looking ahead, analysts are predicting narrower full-year losses of $0.94 per share in fiscal 2024 and $0.48 per share in fiscal 2025. Despite projecting $6 billion in revenue and 32% gross margins in 2027, the company has consistently missed its targets and pushed back profitability timelines, eroding investor confidence.
On the bright side, Plug Power is making some smart moves to strengthen its spot in the clean energy world. The U.S. Energy Department awarded them $76 million in grants, and they're awaiting news on a $1.6 billion loan to build six green hydrogen production plants across the U.S. They're planning to start building in the latter half of 2024 and aim to pump out 500 tons of green hydrogen daily by the end of 2025. With plants in Georgia and the upcoming one in Tennessee, they're looking to cut costs and fulfill a big chunk of their customer's fuel needs, which could be a game-changer for them.
Wall Street's take on Plug Power is a cautious “hold.” Out of 26 analysts, 7 say “strong buy,” 15 say “hold,” 1 thinks it's a “moderate sell,” and 3 suggest a “strong sell.” The average target price for PLUG is $5.30, about 79% north of current levels.
The Verdict: Enphase Edges Out Plug Power
Enphase Energy seems to be the Wall Street favorite of these two clean energy stocks. ENPH has a consensus “moderate buy” rating from analysts, strategic partnerships fueling growth, and a competitive valuation. Plug Power, on the other hand, is stuck at a “hold,” and has yet to turn a profit, despite ambitious green hydrogen plans. But, keep an eye on Plug Power too - if they can get those hydrogen plants up and running and start turning a profit, they could be a serious contender in the longer haul.
On the date of publication, Ebube Jones 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.
