, a real estate investment trust based in Maryland that makes long-term investments in renewables projects.
Eckel notes that Hannon Armstrong has prospered for 40 years under administrations that supported clean energy and those that set up roadblocks to its adoption, so its success isn’t “reliant on political support.” But as government policy turns more favorable, Hannon Armstrong’s addressable market will only expand.
The International Renewable Energy Agency estimates that at least $40 trillion will need to be invested in energy-efficiency projects and renewables through 2050.
He values the company at 36 times its expected 2022 distributable earnings—a premium to its historical multiple but one “justified by Hannon Armstrong’s solid execution, recurring cash flow, end-market diversification, and competitive positioning.” Because it makes money by lending to climate-friendly projects, Hannon Armstrong benefits as investors become more comfortable with the industry’s consistent returns.
Distributable EPS is not a standard accounting measure, but it gives a better picture of the company’s results because it takes into account the unusual way that renewables projects are funded, including through partnerships that split cash flows and tax benefits at different levels over time.
The company’s dividend yield is now 2.9%, but based on the payout’s expected growth rate, it could rise to 3.3% by 2023 for investors who buy in at current prices.
The stock nearly doubled last year, rising along with other renewables stocks like solar and wind companies.
Unlike some other renewables stocks, Hannon Armstrong has the cash flow to back up its valuation—and rising interest rates tend to be good for the company, Strouse notes.
that have gained fame for their role in promoting low-carbon alternatives.
Hannon Armstrong also says that it has more than $3 billion of potential deals in its pipeline for the next 12 months.
“I think you get fired at a sovereign wealth fund if you propose a $13 million investment.” Banks, meanwhile, “would rather finance us than compete with us,” he says, pointing to a $400 million revolving loan facility that the company just secured from multiple big banks.
Eckel doesn’t think the Biden administration needs to approve billions in new spending to make investments in renewable energy rise.
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