Whether from conventional or renewable sources, energy is the world’s truly must-have commodity. Without it, the global economy would simply halt. This bottom-line absolute necessity gives a resilience to energy companies that strengthens them in the markets and attracts positive attention from Wall Street’s analysts.
“We believe favorable technicals, improving fundamentals with stabilizing business cycle, and ongoing geopolitical tensions in the Middle East could help redirect flows into this universally hated and cheap [energy] sector,” said JP Morgan's chief U.S. equity strategist, Dubravko Lakos-Buja.
We’ve opened up TipRanks’ Stock Screener to find three Strong Buy energy stocks that combine positive analyst endorsements with high upside. Each represents a different segment of the energy sector, and each shows how an energy company can leverage the unique features of a particular niche to boost the stock and benefit shareholders.
Enphase Energy: 41% Upside
The market leader in microinverter solar technology, Enphase (ENPH – Get Report) has shipped over 10 million microinverters to the North American, European, and Australian residential and commercial markets. Solar energy – clean and infinite – is widely considered a major source of future commercial power generation, and microinverters are an important part of a solar system. The devices convert the direct current power from a photovoltaic panel into the alternating current used on electrical grids. Enphase was the first company to set up successful, large-scale microinverter production. Year-to-date, Enphase stock is up a whopping 370%.
The company’s leading role in its niche has prompted JPMorgan’s 4-star analyst Mark Strouse to initiate coverage of the stock with a 'buy' rating and a $32 price target. He says, “We are encouraged by ENPH’s fundamental outlook, driven by industry tailwinds (unit growth in solar, MLPE share gains against traditional string inverters, residential energy storage penetration), as well as company-specific tailwinds (new products, improving margins and cash flow, international expansion opportunities).” Strouse’s price target suggests room for an additional 43% upside in the coming 12 months. (To watch Strouse's track record, click here)
Strong products and a clear path to monetization are a firm foundation for any company, and Gus Richard, of Northland Securities, sees plenty of both at Enphase. In his recent research note on the company, Richard says, “ENPH product offerings are shifting away from components to energy management solutions. The Company is developing software and hardware that allow a consumer to optimize its production and usage of electricity with the introduction of its Ensemble solution that incorporates its new inverter IQ 8 and Encharge its battery solution. The Ensemble solution will expand the Company’s revenue opportunity per household from $2K to $10K.” Richard’s $40 price target implies an impressive upside potential of 79%.
Overall, Enphase has a Strong Buy from the analyst consensus. In the last three months, 8 top analysts have reviewed this stock, and all have given buy ratings. Shares are currently selling for $22, and the $31 average price target suggests an upside of 41%. (See ENPH's price targets and analyst ratings on TipRanks)
First Solar: 31% Upside
Where Enhpase focuses on inverter tech, First Solar (FSLR – Get Report) manufactures actual photovoltaic panels that collect solar radiation for energy conversion. The company supplies large-scale installations for solar power plants, and offers service across the full life cycle of the panels – from purchase and financing, to construction, to maintenance and recycling. First Solar is also a leader in cadmium telluride semiconducting panels, and is notable as the first major solar panel producer to push its production cost below $1 per watt of power. The company’s stock is up 37% this year, and has recorded a 49% three-year gain.
4-star analyst Jon Windham, of UBS, reiterated his buy rating on FSLR earlier this month. Citing the company’s move away from direct participation in engineering, procurement, and construction (EPC), Windham writes, “The switch to the larger industry standard sizing of the Series 6 module is key to enabling FSLR to effectively utilize third party EPC. In our view, this transition will give FSLR more flexibility in the development process and enable increased management focus on higher margin Series 6 module manufacturing operations.” Windham’s price target of $80 indicates a 36% upside potential.
FSLR’s Strong Buy consensus rating is derived from 5 buys and 1 hold given in the past three months. The stock is selling for $58, and the average price target of $76.50 suggests a robust upside potential of nearly 31%. (See FSLR's price targets and analyst ratings on TipRanks)
Parsley Energy: 41% Upside
Last month, Parsley (PE – Get Report) beat the earnings forecast, showing 32 cents EPS as opposed to the estimated 31. Q2 revenues came in at $498.54 million. Both EPS and revenue were well ahead of the previous year’s Q2. Riding high on the earnings optimism, Parsley management announced the company’s first dividend, a 3-cent payment to be disbursed quarterly.
Parsley built its profitable business on the Texas oilpatch. The company is engaged in exploration and drilling in the Permian basin of West Texas, currently the richest oil producing area the United States.
Writing from Piper Jaffray, Kashy Harrison sums up Parsley’s situation: “Parsley's execution this year has been solid. Following the indication of a Q3 production beat and the initiation of a dividend, PE has achieved a multiple inline with larger Permian players… We believe PE is well positioned to exit 2019 favorably. Accordingly, with 2019 coming to a close, investors are increasingly exploring 2020 probabilities… We believe PE has the potential to deliver around 10% production growth…” Harrison’s $22 price target implies an upside of 29%.
Neal Dingmann, of SunTrust Robinson, believe that this oil company is on the way up. He writes, “We continue to forecast Parsley to growth ˜2%+/qtr and become FCF positive this month while remaining FCF positive in 2020 even if oil prices fall as low as ~$51/bbl… We believe the company is in a position to generate doubledigit exit-to-exit oil production growth in 2020 while generating $200MM+ in free cash flow.” His price target, $23, indicates his confidence in a 35% upside for PE.
Parsley holds a Strong Buy rating from the analyst consensus, based on 10 buys and 2 holds assigned over the past three months. At just $17 per share, PE has the lowest cost of entry of the stocks in this list. The average price target, $24, suggests a 41% upside. (See PE's price targets and analyst ratings on TipRanks)