Microsoft Agreement And AI Demand Will Drive Future Renewable Expansion

Key Takeaways

• Strategic projects and partnerships, like those with Microsoft, enhance revenue streams and improve operational efficiency, supporting future growth.
  
• Investments in energy storage and asset recycling demonstrate potential to improve margins and earnings, strengthening financial resilience.
  
• Potential regulatory changes and reliance on large contracts could impact revenue stability and profit margins, with pipeline constraints possibly delaying growth.

Catalysts

Owns a portfolio of renewable power generating facilities in North America, Colombia, and Brazil.

• Brookfield Renewable Partners is experiencing a dramatic shift in electricity demand driven by the AI revolution, which supports future revenue growth through increased demand for their low-cost renewable energy.
  
• The company has a robust 200-megawatt development pipeline, strategically located in key data center markets globally, which is expected to drive future revenue and earnings growth as these projects come online.
  
• Brookfield has signed a landmark agreement with Microsoft to deliver 10.5 gigawatts of new renewable capacity between 2026 and 2030, likely enhancing future revenue streams and contributing to its earnings.
  
• The company's investment in Neoen and its focus on large-scale battery energy storage systems are expected to address grid stability and transmission issues, positioning Brookfield for higher potential revenues and operational efficiency gains, thereby potentially improving net margins.
  
• Brookfield's strategy of asset recycling, demonstrated by generating a record $2.8 billion in proceeds at a 25% IRR, shows potential for strong future earnings and capital growth, supporting an overall healthier financial position.

Brookfield Renewable Partners Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Brookfield Renewable Partners's revenue will grow by 13.9% annually over the next 3 years.
• Analysts are not forecasting that Brookfield Renewable Partners will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Brookfield Renewable Partners's profit margin will increase from -6.6% to the average US Renewable Energy industry of 10.8% in 3 years.
• If Brookfield Renewable Partners's profit margin were to converge on the industry average, you could expect earnings to reach $935.6 million (and earnings per share of $1.42) by about March 2028, up from $-390.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.2x on those 2028 earnings, up from -39.7x today. This future PE is greater than the current PE for the US Renewable Energy industry at 19.2x.
• Analysts expect the number of shares outstanding to decline by 0.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.53%, as per the Simply Wall St company report.

Brookfield Renewable Partners Future Earnings Per Share Growth

Risks

• There is elevated volatility in public markets and uncertainty on potential regulatory changes affecting the renewable sector in the U.S., which could impact future revenues and earnings if political shifts alter current favorable conditions for renewables.
  
• The potential risk from impending regulatory changes, which might impact tax credits such as the ITC/PTC in the U.S., could affect the development margins or cost structures, potentially impacting earnings if not fully passed through to PPA prices.
  
• The supply-demand imbalance in the renewable market is not fully addressed by the current advanced pipeline, suggesting an insufficient number of ready-to-build projects which could delay expected revenue growth if pipeline constraints are not alleviated.
  
• A dependence on large hyperscaler agreements, while beneficial, might expose the company to significant concentration risks, impacting revenue stability if any major offtaker reduces commitments or faces its own operational challenges.
  
• While framework agreements with suppliers might help alleviate some procurement risks, potential tariffs on imported equipment could lead to increased costs, potentially squeezing net margins if they cannot fully be passed through in power purchase agreements (PPAs).

Valuation

• The analysts have a consensus price target of CA$38.468 for Brookfield Renewable Partners based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$42.05, and the most bearish reporting a price target of just CA$34.12.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.7 billion, earnings will come to $935.6 million, and it would be trading on a PE ratio of 24.2x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of CA$33.45, the analyst price target of CA$38.47 is 13.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.