Summary
- The COVID-19 disruption has worked in the renewable power sector’s favor.
- Renewable power does away with geopolitical tensions, oil price volatility, and pollution. It helps increase employment and recovers its investment over the long run.
- Hannon Armstrong Sustainable Infrastructure Capital has a great future ahead of it, and I am bullish on the stock in the long run.
- I do much more than just articles at The Lead-Lag Report: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »
I've been very passionate about renewable energy for many years, particularly solar energy and its capacity to bring abundant clean, sustainable energy to millions around the globe. - Richard Branson
The buzz around nations allocating higher budgets for renewable energy is rising by the day, and that is great news for stocks such as Hannon Armstrong Sustainable Infrastructure Capital (NYSE:HASI). Investing in renewable power is being regarded as a recovery strategy in the post-COVID-19 age because it does away with geopolitical tensions and oil price volatility, reduces pollution, increases employment, motivates entrepreneurs, and recovers its investment over the long run.
I have been and am bullish on HASI (since it was $33.66) as a long-term investment and here's a confirmation of this: HASI has priced its 0% convertible senior notes due August 2023 at about $48.36, which is a healthy premium compared to its market price of $41.40 as of August 27, 2020. It is a sign of strength.
Image Source: Twitter
HASI has many things going for it. Here are the reasons for my bullish view:
The Business Model and Risks
HASI invests in the equity of renewable energy companies, government receivables, commercial receivables, and real estate which it leases long term to sustainable infrastructure projects. It has qualified for and elected to be taxed as a REIT. The company completed $186 million of transactions in Q2 2020 as compared to $319 million in Q2 2019. The pandemic caused the slowdown and it is understandable.
As of June 30, 2020, HASI's managed assets worked up to about $6.2 billion on a consolidated basis. The company is also evaluating a host of new projects (in pipeline) worth $2.5 billion in equity, debt, and real estate.
COVID-19 is expected to disrupt the company's operations in Q3 and Q4 2020 by interrupting its service and managerial operations. Delays or interruptions in financing, repayments, credit risks, etc. are other significant risks posed by the pandemic.
HASI, like other companies, has no option but to cope with the business interruptions. Recent events suggest that the company is coping admirably - in Q2 2020, it reported an EPS of 36 cents, beating estimates of 32 cents. This increase in EPS happened despite providing for a $2.5 million COVID-19-related loss on receivables. It just proves that the company's management team is efficient in optimizing opportunities and managing financial headaches.
