Clearway Energy Inc (CWEN.A, Financial) has recently shown a notable daily gain of 13.86%, with a 3-month increase of 3.79%, signaling a potential interest from the market. With an Earnings Per Share (EPS) of $0.46, investors are keen to understand if the current market price truly reflects the company's intrinsic value. Is Clearway Energy modestly undervalued? This article delves into a comprehensive valuation analysis to answer this pressing question.
Company Introduction
Clearway Energy Inc is a leading energy infrastructure investor, focusing on clean energy investments and owning a diverse portfolio of sustainable, long-term contracted assets across North America. The company operates through conventional power generation, renewables, and thermal divisions. Despite its current market price of $24.24 per share and a market cap of $3.40 billion, Clearway Energy's Fair Value (GF Value) is estimated at $32.68, suggesting that the stock may be modestly undervalued. This valuation discrepancy invites a closer examination of the company's financial health and growth prospects.
Summarize GF Value
The GF Value is an exclusive metric that determines the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor considering past performance and growth, and future business performance estimates. The GF Value Line illustrates the fair value at which the stock should ideally trade. A stock priced significantly above this line is considered overvalued and may offer poorer future returns, whereas a stock priced below may indicate higher future returns. Clearway Energy's current price suggests that it is modestly undervalued, potentially leading to higher long-term returns than its business growth alone would indicate.
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Financial Strength
Investing in companies with robust financial strength is crucial to avoid permanent capital loss. Clearway Energy's cash-to-debt ratio of 0.07 ranks lower than 79.57% of its peers in the Utilities - Independent Power Producers industry, leading to a GuruFocus financial strength rating of 3 out of 10. This rating indicates a less-than-ideal balance sheet that warrants investor caution.
Profitability and Growth
Clearway Energy has maintained profitability for 8 out of the past 10 years, with a revenue of $1.30 billion and an EPS of $0.46 in the last 12 months. Its operating margin of 23.78% surpasses 62.84% of competitors, earning it a fair profitability rank. In terms of growth, the company's 3-year average revenue growth rate is below 68.87% of the industry, but its EBITDA growth rate of 38.4% is impressive, ranking better than 81.98% of its peers.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) is another way to assess profitability. Clearway Energy's ROIC of 0.23 indicates that it is generating cash flow well above its capital cost of 2.92, suggesting value creation for shareholders.
Conclusion
In conclusion, Clearway Energy (CWEN.A, Financial) appears to be modestly undervalued based on its GF Value. While the company's financial strength could be better, its profitability is stable, and its growth prospects are promising. Investors interested in Clearway Energy can further explore its financials through the 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
