Alt Energy OutlookSeptember 2019Mark Strouse, CFA 212-622-8244mark.w.strouse@jpmorgan.comJ.P. Morgan Securities LLCSee the end pages of this presentation for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. North America Equity ResearchPaul Coster, CFA AC212-622-6425paul.coster@jpmorgan.comJ.P. Morgan Securities LLCPaul J Chung212-622-5552paul.j.chung@jpmorgan.comJ.P. Morgan Securities LLCThis report is neither intended to be distributed to Mainland China investors nor to provide securities investment consultancy services within the territory of Mainland China. 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Morgan2Alt Energy Long-Term Outlook – September 2019Prospects for 50% Renewables by 2050 are coming into focus$13Tr of investment in new generating capacity over 32 years, $1Tn in the U.S.70% of new investment directed at wind and solarRenewables-plus-storage competitive with coal and gas by late 2030sThe power sector will de-carbonize (CO2 emissions decline 36% by 2050), decentralize and digitize.Top Alt Energy Picks: •First Solar (FSLR/OW/AFL) – $82 Price Target•Hannon Armstrong (HASI/OW) – $31 Price Target•SolarEdge (SEDG/OW) – $100 Price Target•Sunnova (NOVA/OW) – $18 Price TargetOther Ideas: TPI Composites (TPIC/OW) and Bloom Energy (BE/OW)32019 Top Pick: First Solar (FSLR/OW/AFL), PT $82•Differentiated, proprietary technology (cadmium telluride thin-film)•Highly automated fixed-cost, scalable manufacturing capacity•Solid visibility with capacity sold out through YE20 and into FY21•Series 6 ramp tracking expectations, start-up expenses and reduced production weighing on near-term margins but wind down in 2H19 •Series 6 cost/watt is ~40% lower than current Series 4, which should improve the company’s already industry-leading gross marginsRisks•Section 201 solar tariffs could be reversed, exempt bifacial floods the U.S. market•Series 6 may not deliver targeted module efficiency and cost-reduction roadmap•Orders previously received are canceled/delayed•Silicon-based competitors price irrationally42019 Top Pick: Hannon Armstrong (HASI/OW), PT $31•Very large addressable market measured in the tens of trillions of dollars over the next few decades•Downstream ownership a less volatile way to gain exposure to the industry •Diversified end-markets spanning demand-side (energy efficiency) and supply-side (wind/solar) •Flexible business model – securitizations can provide growth during periods of flat/inverted yield curves•Paid to wait – ~5% dividend yieldRisks•A broad-based economic slowdown could weigh on industry investment activity•As a REIT, rising interest rates may lead investors to require a higher yield, negatively impacting the stock’s valuation•Dislocation in capital markets could negatively impact HASI’s ability to grow52019 Top Pick: Sunnova (NOVA/OW), PT $18•Leading U.S. residential solar service company in a massive TAM only 2% penetrated•Differentiated go-to-market using independent dealer network •Solidly EBITDA profitable, ahead of its peers•30% customer growth, should yield 40% EBITDA CAGRRisks•Rising interest rates could slow growth•Loss of key dealers could impede growth•Credit risk in recessionary environment•Homeowners could buy systems outright62019 Top Pick: SolarEdge (SEDG/OW), PT $100•Differentiated, proprietary technology•Unit-based growth tied to overall GW growth in global solar market•Should continue to outgrow the market as module-level power electronics (MLPE) penetration stands at just ~10% globally (up from 4% at YE17)•Solid balance sheet and consistent FCF generation•New products over the next twelve months should open new addressable markets (energy storage, large-scale C&I, small-scale utility)Risks•Priced-based competition from string-inverter companies or new-entrants in the MLPE space•Distributed solar end-market slows relative to prior expectations•Company poorly executes product transitions7Other Ideas: Bloom Energy and TPI CompositesBloom Energy (BE/OW), Price Target: $18•Leading supplier of NatGas-gas base distributed fuel cell technologies•Rapid adoption by C&I customers, hospitals, data centers, utilities (Korea)•Strong value proposition where in-in-the-money and gas infrastructure available•Strong backlog•Scaling into profitabilityTPI Composites (TPIC/OW), Price Target: $32•Leading independent global wind blade contract manufacturer•Expanding into India and new adjacent markets (auto vertical)•Very good revenue visibility•EBITDA expectations re-set in 2Q19 to factor in “transitions”8Cumulative Investment of $13 Trillion in Generating Capacity,...
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