Brookfield Renewable Stock: Buy, Sell or Hold?

Brookfield Renewable stock (TSX:BEP.UN) has surged by 31% since earnings. Does this mean you should get in, or get out?

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Few companies have seen as much growth in the last month or so as Brookfield Renewable Partners LP (TSX:BEP.UN). Shares of BEP stock have been climbing higher and higher after reporting record first-quarter results. But now that shares are up 31% since earnings, is it time to buy? Or time to cut and run?

Buy

Of course, there are a number of compelling reasons as to why investors might still want to buy BEP stock. First off, Brookfield Renewable reported robust financial performance in Q1 2024, with funds from operations (FFO) increasing by 8% year over year to US$296 million. This increase is indicative of the company’s strong operational efficiency and successful execution of growth initiatives. 

This included more growth in its diversified portfolio, including hydroelectric, wind, solar, and distributed energy assets. The hydroelectric segment alone delivered $193 million of FFO, benefiting from strong cash flow resiliency due to diversified assets and inflation-linked power purchase agreements.

And of course there is the partnership with Microsoft (NASDAQ:MSFT), which involves delivering over 10.5 gigawatts of renewable energy capacity, underscoring Brookfield’s capability to meet the exponential demand for clean energy from major corporations. Add on that the company is on track to bring approximately 7,000 megawatts of new renewable capacity online this year, and it certainly looks like a strong buy.

Sell

But nothing is perfect. Despite reporting record FFO of US$296 million for Q1 2024, the net income attributable to unitholders was a significant loss of US$120 million, compared to a loss of US$32 million in Q1 2023. This negative net income trend raises concerns about the company’s profitability and cost management.

What’s more, the company has been actively engaging in significant financing activities, securing approximately US$6 billion in financings during the quarter. While this strengthens liquidity, it also increases the company’s debt levels, potentially leading to higher financial risk, especially if interest rates rise or market conditions change unfavourably.

Finally, BEP stock might be overvalued considering the high expectations priced into the stock. The significant investments and acquisitions, like the potential purchase of a majority stake in Neoen, require substantial capital. If these investments do not generate the expected returns, it could negatively impact the stock’s valuation and investor sentiment.

Hold

Yet if you’re like me and already own BEP stock, perhaps it’s better just to hold the stock for now. Despite some negative aspects, the company’s strategic position, financial health, and growth prospects offer significant potential for long-term investors. Brookfield Renewable is still well-positioned to capitalize on future investment opportunities and sustain its growth trajectory.

Its strategic partnerships with Microsoft and Neoen, as well as a 7,000 megawatt pipeline, support long-term growth. Furthermore, it remains a leader in the industry, with the company’s asset recycling activities expected to generate $3 billion in proceeds this year, providing additional capital to reinvest in high-return projects. This strategy supports sustained growth and value creation for unitholders.

All together, there are certainly at least reasons to continue watching and investing in BEP stock. And with a dividend yield at 5.11%, it’s one I would continue at least holding for now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has positions in Brookfield Renewable Partners and Microsoft. The Motley Fool recommends Brookfield Renewable Partners and Microsoft. The Motley Fool has a disclosure policy.

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