Innergex Renewable is a Top Pick for Q3, says iA Capital

It’s been a long way down for Innergex Renewable Energy (Innergex Renewable Energy Stock Quote, Charts, News, Analysts, Financials TSX:INE) over the past two and a half years, but investors ought to be keen on the stock, according to iA Capital Markets analyst Naji Baydoun, who updated clients on the company in a Tuesday report. A top pick of Baydoun’s for the third quarter, Innergex’s compelling valuation supports a lot of upside potential, according to the analyst.

Headquartered in Longueuil, Quebec, Innergex Renewable is a pure-play renewable power producer with ownership interests in over 3.6 GW (net) of operating hydro, wind and solar power generation capacity, with assets in Canada, the US, France and Chile.

The company and stock have a number of upcoming catalysts, according to Baydoun, who pointed to Innergex’s leading position and market share in Quebec’s wind sector, which allows it to competitively bid on significant renewable power RFPs in the province. The analyst noted that Hydro-Québec plans to award 20-30-year contracts for procured power, with about 40 per cent of evaluation criteria related to non-price factors.

Innergex’s presence in BC (with about 990 MW of operating capacity and about 85 per cent hydro) and its significant development expertise with local stakeholders will help accelerate its growth in Canada.

“We continue to also see financing initiatives as key near-term catalysts that could unlock value from existing assets (via monetizations and re-financings) and provide low-cost capital to fund growth (thus removing an important overhang on the shares),” Baydoun wrote.

Innergex share price was up around $30 in early 2021, which was just before the wind came out of the sails for the renewable energy sector in general. The stock has since been mostly dropping and fell below $14 as of April of this year. 

With the update, Baydoun reiterated a “Strong Buy” rating on INE and $22.00 target price, which at press time represented a projected one-year return including distribution of 84 per cent.

The analyst said INE shares continue to trade at a significant discount to their own historical trading averages and well below their roughly 2x forward EV/EBITDA historical premium to peers. 

Baydoun said as the company delivers more stable operating and financial performance and executes on its growth and financial priorities, improved market sentiment should follow.

“In our view, INE has a low-risk investment profile backed by a diversified portfolio of renewables technology platforms (providing long-term output stability, and resource, offtake and market diversification) and a large and high-quality hydro fleet,” Baydoun wrote.