Brookfield Renewable Partners (BEP) owns and operates one of the largest pure-play renewable power platforms in the world. The partnership invests in clean-energy assets either directly or through its institutional and joint venture partners.
BEP’s international portfolio of assets features around 21,000 MW of installed capacity, while the company’s development pipeline reaches around 62,000 MW. As a result, BEP enjoys robust growth visibility ahead.
While the ongoing macro oil environment has shifted investor focus toward conventional energy stocks amid record oil prices, renewable energy should remain in high demand as governments and institutions across the globe strive to attain their ESG goals.
Units of BEP are currently trading around 10% below their 52-week high levels. The stock is likely rather overvalued. However, it should still provide unitholders with healthy distribution growth prospects. I am neutral on the stock.
Recent Performance & Distribution Growth Prospects
BEP’s year-end results demonstrated the ongoing tailwinds the partnership is enjoying amid strong demand for renewable energy. The company reported FFO (Funds From Operations) of $934 million or $1.45 per unit, a 10% growth compared to last year or 17% on a normalized basis.
Growth was driven by the resilience of BEP’s high-quality, inflation-linked contracted cash flows, organic growth efforts, and incremental acquisitions.
Amid another cheerful year, the company also hiked its quarterly distribution rate by 5% to $0.32. In my view, BEP’s transparent expansion path ahead should continue rewarding investors with growing payouts. About 90% of BEP’s 2022 proportionate generation is contractually-secured, boasting a weighted-average remaining duration of 15 years.
In addition, the majority of BEP’s counterparties are also investment-grade, very creditworthy, and the partnership’s revenue base is highly diversified, featuring a diversified customer base of over 700 creditworthy parties.
Combined with the fact that BEP’s development backlog is three times its existing generation capacity, BEP combines all the right ingredients for stable and predictable growth ahead with a reduced risk profile.
To illustrate BEP’s clear growth road map ahead, the partnership itself has targeted long-term annualized total returns between 12% and 15%, including an annual distribution growth rate between 5% and 9%.
Wall Street’s Take
Turning to Wall Street, Brookfield Renewable Partners has a Moderate Buy consensus rating based on eight Buys and four Holds assigned in the past three months.
At $37.08, the average Brookfield Renewable Partners price target implies 7.5% downside potential.
Valuation & Conclusion
Apparently, Wall Street analysts find BEP slightly overvalued, and I wouldn’t say they are inaccurate. Units are trading at a forward EV/EBITDA of ~27.5, which is one of the richest multiples the stock has seen and certainly considerably higher than its decade-average of around 15.
This is also illustrated in the stock’s distribution yield, which has been compressed substantially amid unit price appreciation despite the underlying distribution hikes.
That said, BEP’s valuation expansion is not entirely unjustified as the partnership investment case offers one of the highest-quality and predictable growth opportunities in a favorable space to have capital allocated for the next several decades.
Hence, while I am neutral on the stock, I still believe that BEP’s overall qualities and distribution growth prospects remain strong.
Download the TipRanks mobile app now
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Read full Disclaimer & Disclosure
