Amid rising concerns about climate change and environmental injustice, many nations worldwide are making consistent efforts to transition to a green, clean, and equitable energy future. With soaring demand and favorable government incentives and investments, the renewable energy sector’s outlook looks promising.
Amid this backdrop, it could be wise to invest in quality green energy stocks Alliance Resource Partners, L.P. (ARLP), Steel Partners Holdings L.P. (SPLP), and Westlake Chemical Partners LP (WLKP) to ensure solid returns.
Despite encountering several macroeconomic headwinds over the past year, surging demand and attractive, long-term incentives will create solid tailwinds for the renewable energy industry in 2023 and beyond.
Led by solar photovoltaic (PV) and onshore wind, renewable power growth is soaring, driven by the global energy crisis and ongoing policy momentum. According to the International Energy Agency (IEA), global renewable capacity additions are expected to grow by 107 gigawatts (GW), the largest absolute increase ever, to more than 440 GW this year.
Further, global renewable capacity additions could reach 550GW in 2024. Moreover, solar PV capacity accounts for nearly two-thirds of this year’s expected increase in global renewable capacity. Also, after two consecutive years of decline, onshore wind capacity additions are set to rebound by 70% in 2023 to 107 GW, an all-time record high.
According to a report by Mordor Intelligence, the U.S. renewable energy market size is projected to grow from 395 GW in 2023 to 636.44 GW by 2028, exhibiting a CAGR of 10% during the forecast period. Increasing solar and wind energy installations nationwide, supportive government policies and funding, and additional subsidies on renewables would drive the market’s growth.
The Biden-Harris administration is taking adequate steps to eliminate fossil fuels as a form of energy generation in the U.S. by 2035. The White House set out a goal of 80% of renewable energy generation by 2030 and 100% carbon-free electricity five years later. As per BloombergNEF, investments in the nation’s energy transition hit a new record of $141 billion last year.
The trend of investments in green energy is expected to continue as the Inflation Reduction Act (IRA), passed in August 2022, allocates around $370 billion in funding and subsidies for improving energy security and accelerating clean energy transitions.
Given the industry’s bright growth prospects, investing in fundamentally sound green energy stocks ARLP, SPLP, and WLKP could be wise now for potential gains.
Let’s take a closer look at the fundamentals of these stocks:
Alliance Resource Partners, L.P. (ARLP)
ARLP is a diversified natural resource company that produces and markets coal primarily to utilities and industrial customers in the United States. The company operates through four segments: Illinois Basin Coal Operations; Appalachia Coal Operations; Oil & Gas Royalties; and Coal Royalties.
On July 28, ARLP’s Board of Directors approved a cash distribution to its unitholders for the quarter that ended June 30, 2023. On August 14, ARLP unitholders received a quarterly cash distribution of $0.70 per unit. The announced distribution represents an increase of 75% over the cash distribution of $0.40 per unit for the quarter ended June 30, 2022.
The increase in cash distribution is consistent with the company’s long-term strategic capital allocation plans and is supported by its strong financial position. ARLP’s annual dividend of $2.80 yields 14.01% on the current share price, and its four-year average dividend yield is 13.50%.
In terms of the trailing-12-month net income margin, ARLP’s 28.03% is 99.4% higher than the industry average of 14.06%. Also, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 46.03%, 24.03%, and 26.42% are favorably higher than the industry averages of 21.56%, 10.40%, and 8.06%, respectively.
For the second quarter that ended June 30, 2023, ARLP’s total revenues grew 3.5% year-over-year to $641.84 million. Its income from operations increased 3.7% from the year-ago value to $183.93 million. The company’s EBITDA was $249.24 million, up 1% year-over-year. Also, its free cash flow rose 88.7% year-over-year to $153.48 million.
Furthermore, the company’s net income and earnings per limited partner unit came in at $171.31 million and $1.30, representing increases of 4.6% and 5.7% year-over-year, respectively.
Analysts expect ARLP’s revenue for the fiscal year (ending December 2023) to increase 11.3% year-over-year to $2.68 billion. Likewise, the company’s EPS is expected to grow 24.4% year-over-year to $5.46 million for the same period. Moreover, ARLP has surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of ARLP have gained 9.4% over the past month and 1.5% year-to-date to close the last trading session at $19.98.
ARLP’s POWR Ratings reflect its solid prospects. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
ARLP has a grade B for Value and Quality. Within the B-rated MLPs - Other industry, it is ranked #2 out of 8 stocks.
To see additional POWR Ratings for Sentiment, Growth, Stability, and Momentum for ARLP, click here.
Steel Partners Holdings L.P. (SPLP)
SPLP engages in energy, industrial products, defense, supply chain management, logistics, banking, and youth sports businesses globally. The company operates through three segments: Diversified Industrial; Energy; and Financial Services.
On August 9, the company’s Board of Directors declared a regular quarterly cash distribution of $0.375 per unit, payable on September 15, 2023, to unitholders of record as of September 1, 2023. The payment of dividends reflects the company’s strong financial position.
On May 1, SPLP and Steel Connect, Inc. (STCN) announced that Steel Partners and certain of its affiliates (the Steel Partners Group) had transferred certain marketable securities held by the Steel Partners Group to Steel Connect in exchange for 3.5 million shares of Series E Convertible Preferred Stock of Steel Connect.
Upon completing the transaction, the Steel Partners Group would hold nearly 85.12% of the outstanding equity interests of Steel Connect. This exchange transaction might bode well for SPLP.
SPLP’s trailing-12-month gross profit margin of 35.03% is 16.2% higher than the industry average of 30.14%. Likewise, the stock’s trailing-12-month net income margin of 10.77% is 73.9% higher than the industry average of 6.19%. Also, its trailing-12-month levered FCF margin of 12.75% is 135.7% higher than the 5.41% industry average.
SPLP’s revenue increased 13.5% year-over-year to $500.90 million in the second quarter that ended June 30, 2023. The company’s adjusted EBITDA grew 24.8% from the year-ago value to $73.60 million. Its adjusted free cash flow totaled $29.50 million. As of June 30, 2023, its cash and cash equivalents were $353.16 million, compared to $234.45 million as of December 31, 2022.
Over the past six months, the stock has gained 11% and 4.8% year-to-date to close the last trading session at $45.04.
SPLP’s POWR Ratings reflect this strong outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
SPLP has a B grade for Growth, Sentiment, Stability, and Quality. Within the same industry, it is ranked #3.
Beyond what we stated above, we also have SPLP’s ratings for Value and Momentum. Get all SPLP ratings here.
Westlake Chemical Partners LP (WLKP)
WKLP acquires, develops, and operates ethylene production facilities and related assets in the United States. The company’s ethylene production facilities mainly convert ethane into ethylene. In addition, it sells ethylene co-products, such as propylene, crude butadiene, pyrolysis gasoline, and hydrogen, directly to third parties on a spot or contract basis.
On August 1, the Board of Directors of WLKP declared a distribution of $0.4714 per unit. This represents the 36th quarterly distribution by the company to its unitholders since its initial public offering. The distribution will be paid on August 25, 2023. MLP distributable cash flow provided trailing-12-month coverage of 1.05x the declared distributable for the second quarter of 2023.
WLKP pays an annual dividend of $1.89, translating to a yield of 8.46% at the prevailing price level. Its four-year average dividend yield is 8.23%. Over the past five years, the company’s dividend payouts have grown at a CAGR of 3.8%.
WLKP’s trailing-12-month EBITDA margin of 34.58% is 101.6% higher than the industry average of 17.15%. In addition, the stock’s trailing-12-month ROCE and ROTC of 10.96% and 16.87% are 29.3% and 201.4% higher than the respective industry averages of 8.48% and 5.60%.
During the second quarter that ended June 30, 2023, WLKP reported net sales of $264.18 million. Also, net income attributable to Westlake Partners came in at $11.87 million and $0.34 per common unit, respectively. For the six months ended June 30, 2023, the company’s cash inflows from operating activities were $243.40 million, up 7.9% year-over-year.
Street expects WLKP’s revenue to increase 6.7% year-over-year to $1.52 billion for the fiscal year ending December 2024. The company’s EPS for the same period is expected to grow 21.8% from the previous year to $1.98.
Over the past three months, WLKP’s stock has gained 4.7% to close its last trading session at $22.29.
WLKP’s strong fundamentals are reflected in its POWR Ratings. The company has an overall A rating, translating to a Strong Buy in our proprietary rating system.
WLKP has an A grade for Quality and a B for Value and Stability. It is ranked first among eight stocks in the B-rated MLPs - Other industry.
Click here to access additional POWR Ratings of Sentiment, Growth, and Momentum for WLKP.
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ARLP shares were trading at $20.17 per share on Thursday morning, up $0.19 (+0.95%). Year-to-date, ARLP has gained 9.86%, versus a 16.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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