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Clearway Energy undervalued by 40%, DCF model suggests

EditorHari G
Published 11/04/2023, 09:45 AM
Updated 11/04/2023, 09:45 AM
© Reuters.

Clearway Energy (NYSE:CWENa), Inc. (NYSE:CWEN.A), a prominent player in the renewable energy space, may be significantly undervalued according to a recent valuation using a Discounted Cash Flow (DCF) model. The model, which factors in dividends per share (DPS), suggests a value of US$35.91 per share for the company. This estimate surpasses the current market price of US$21.51 and the analyst's target of US$30.30, suggesting a potential undervaluation of around 40%.

The DCF model used for this valuation took into account a sustainable dividend growth rate of 2.2%, which mirrors the 5-year average of the 10-year government bond yield. The model also factored in a cost of equity of 6.4%.

While this method provides valuable insights for comparing competitors, it is worth noting that slight adjustments to the model can lead to vastly different views, underlining potential imprecision in valuation. This analogy is akin to a telescope, where minor tweaks can drastically alter the perspective.

Despite these potential discrepancies, the DCF model's valuation suggests that Clearway (NYSE:CWEN) Energy's shares could be trading at a significant discount, providing an intriguing point for investors and market watchers alike. As always, it remains crucial for investors to conduct thorough research and consider multiple valuation methods before making investment decisions.

InvestingPro Insights

In the context of the recent valuation of Clearway Energy, Inc., it is beneficial to consider InvestingPro's real-time data and tips. According to InvestingPro's data, Clearway Energy has a market capitalization of $4520M, a P/E ratio of 46.61, and has experienced a revenue growth of 7.5% during the last twelve months as of Q3 2023.

Two key InvestingPro Tips that might be of particular interest are that the company has high earnings quality, with free cash flow exceeding net income, and that its revenue growth has been accelerating. These factors, combined with the DCF model's valuation, suggest that Clearway Energy has a strong financial performance and potential for growth.

InvestingPro's product offers a total of 11 additional tips related to Clearway Energy, which could provide further insights to investors. These tips could be particularly valuable when considering investment decisions in the context of the potential undervaluation of Clearway Energy's shares.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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