Nicaragua Risks Will Hinder Expansion Yet Spur Opportunity

Key Takeaways

• Dependence on Nicaraguan assets and regional risks limits stability and exposes future earnings to political and regulatory disruptions.
  
• Expansion efforts are hampered by rising costs, competition, and development delays, constraining revenue growth and long-term profitability.
  
• Heavy dependence on legacy and geographically concentrated assets, plus new market and execution risks, threaten growth, profitability, and long-term shareholder returns.

Catalysts

Engages in the acquisition, exploration, development, and operation of renewable energy projects in Latin America and the Caribbean.

• While Polaris has shown notable progress diversifying its asset base by expanding into wind, solar, and hydroelectric projects outside Nicaragua and is ramping up its storage ambitions, its cash flows and valuation remain highly sensitive to operational and political risks in Latin America, particularly Nicaragua, which still represents a disproportionately large share of revenue-making future earnings and net margins susceptible to local disruptions and unfavorable regulatory changes.
  
• Although the global momentum toward net-zero emissions continues to drive long-term demand for renewable power and battery storage, Polaris' ability to capitalize fully on these trends is constrained by the rising cost of capital amid tighter credit markets and increased global interest rates, which could limit its expansion and compress returns from new project development and acquisitions.
  
• While new projects such as the Puerto Rico ASAP battery storage and Canoa 1 brownfield expansion could materially improve revenue growth and risk diversification, delays in permitting, approval bottlenecks, or supply chain disruptions-exacerbated by rising geopolitical instability-could push back targeted completion dates and result in elevated development costs, directly impacting Polaris' ability to grow EBITDA and earnings as anticipated.
  
• The company benefits from the secular trend of declining technology costs for renewables, but legacy geothermal assets are subject to natural decline rates and higher maintenance expenses, as seen in Nicaragua, which may structurally cap long-term organic revenue growth and limit improvements in consolidated net profit if not offset by successful, large-scale new developments.
  
• While investor demand for ESG and sustainable assets has generally improved sector funding conditions, Polaris faces increasing competitive pressure from larger global utilities and regional energy giants expanding in Latin America, making it more challenging to secure premium, long-duration power purchase agreements and potentially placing downward pressure on margins and long-term cash flows.

Polaris Renewable Energy Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Polaris Renewable Energy compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Polaris Renewable Energy's revenue will grow by 9.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -15.6% today to 48.4% in 3 years time.
• The bearish analysts expect earnings to reach $47.5 million (and earnings per share of $1.77) by about July 2028, up from $-11.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 7.7x on those 2028 earnings, up from -16.0x today. This future PE is lower than the current PE for the CA Renewable Energy industry at 17.6x.
• Analysts expect the number of shares outstanding to decline by 0.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.32%, as per the Simply Wall St company report.

Polaris Renewable Energy Future Earnings Per Share Growth

Risks

• The company's continued heavy weighting toward its Nicaragua asset, which still accounts for over 50% of asset base and earnings, exposes Polaris to elevated political and regulatory risks that could lead to discounted equity multiples and volatile cash flow over the long term, limiting both revenue growth and long-term net earnings.
  
• Despite recent diversification, long-term stock performance has been stagnant, with equity returns underperforming debt-suggesting that the market perceives persistent risks or limited growth prospects, which may indicate structural challenges impacting future share price appreciation and total shareholder return.
  
• Execution risks tied to the company's new strategy of undertaking its own brownfield development, where it lacks historical experience, could result in unexpected delays, cost overruns, or operational challenges that pressure both revenue realization from new assets and overall EBITDA margins.
  
• The slow approval process and dependence on government-backed programs in Puerto Rico and the Dominican Republic for future growth introduces regulatory and execution risks; any prolonged delays or failure to secure contracts for storage or solar expansions could restrict revenue growth and stall long-term earnings improvement.
  
• Continued reliance on mature or legacy geothermal assets, which are experiencing organic output decline even if managed, could lead to declining cash flow from these assets over time; without accelerated growth from newer projects, this trend could constrain both revenue and net profitability.

Valuation

• The assumed bearish price target for Polaris Renewable Energy is CA$20.01, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Polaris Renewable Energy's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$32.11, and the most bearish reporting a price target of just CA$20.01.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $98.1 million, earnings will come to $47.5 million, and it would be trading on a PE ratio of 7.7x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of CA$12.44, the bearish analyst price target of CA$20.01 is 37.8% 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.