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Barclays, Guggenheim take optimistic view on pair of yieldcos

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Barclays, Guggenheim take optimistic view on pair of yieldcos

BarclaysCapital Inc. and Guggenheim Securities LLC analysts struck a positive tone on apair of yieldco stocks, a potential sign that the asset class could beregaining broader investor appeal.

Inits July 11 note, Barclays upgraded 8point3Energy Partners LP to "overweight" from "underweight"and lifted its price target 29% to $18, suggesting that the yieldco hasdemonstrated its ability to remain "nimble" in its acquisitionstrategy, namely in 8point3's decision to pursue the purchase of 's planned280-MW CaliforniaFlats solarproject instead of First Solar's planned 250-MW Moapa project.

TheMoapa plant in Clark County, Nev., is expected online in December, whileCalifornia Flats, in Monterey County, Calif., is expected online in 2017 and2018, according to SNL Energy data.

"Wenow view CAFD as a relative safe haven for investors looking for exposure tothe alternative energy space given expected weak 2017E U.S. utility-scaledemand," Barclays analysts wrote. "CAFD's [right of first offer]pipeline visibility gives us more confidence in the near-term growth prospectsand fairly predictable nature of CAFD's dividend payout."

Barclays also highlighted the stability afforded to 8point3under its joint-venture parent structure between First Solar and , a quality thatcould go a long way in assuring investors that management is relatively moreindependent, and less constrained by a sponsor's balance sheet.

"Weprefer CAFD's strong sponsor support and relatively more conservative approachgiven access to equity financing remains a challenge," the analysts added.

Inits July 11 note Guggenheim held PatternEnergy Group Inc. shares at "buy," while assigning a higher$28 price target, roughly 16% higher than the stock's $24.07 close on July 11.

Guggenheimsuggested Pattern's recent acquisitionof the 324-MW Broadview wind project for $269 million is immediately accretiveto the stock, and expects cash available for distribution to increase to about$167 million from $153 million with the deal.

Thatcould be enough to invite more dividend-focused investors back into the mix forPattern, especially since the company would not necessarily need to issue newequity to fund the purchase, Guggenheim analyst Sophie Karp said in aninterview.

"Withthe [at the market] program they have in place, they can issue equity foracquisitions down the road for the ROFO list, and issue equity when market isattractive," Karp said.

Patterncould stand to benefit from the ultimate exit of its private equity sponsor,Riverstone Holdings LLC,which owns about 40% equity in the company, while looking to potentially takeon some 600 MW of development projects PatternEnergy Group LP acquired from SunEdison Inc.

"Theoutlook on yieldcos is becoming more constructive," Karp added. "Ingeneral, people are looking for those cash flows, but the impressive dividendgrowth targets above 20% are a thing of the past."