Pattern Energy Poised To Grow On Strategic Initiatives

Renewable energy leader, Pattern Energy Group Inc. (NASDAQ:PEGI) recently announced a set of strategic initiatives that aim at improving long-term growth outlook as well as capital opportunities. Notably, independent power company – Pattern Development, private investment firm – Riverstone Holdings and pension investment manager – Public Sector Pension Investment Board (PSP Investments) will make notable contributions to Pattern Energy in achieving these strategies.

These initiatives will enable Pattern Energy to gain an increased share of the global renewable energy market worth $250 billion annually. The projects will also support Pattern Energy’s 2020 vision to increase portfolio to 5 gigawatts (GW) by 2020.

Highlights of the Projects

The projects include new capital commitments of $1 billion for Pattern Development 2.0, under which Pattern Energy will make minority investment of $60 million, with a right to fund an additional $240 million and approximately $724 million in long-term capital initiatives from institutional investors through a managed entity by Riverstone.

Pattern Development 2.0 will initially own development assets that are subject to Pattern Energy’s Right of First Offer (ROFO). This will focus on wind, solar, transmission and storage projects in the U.S., Canada and Mexico.

Under the aforementioned initiatives, a strategic co-investment relationship with PSP Investments will be established. In fact, PSP Investments will eventually become the largest shareholder in Pattern Energy by buying 10% (8.7 million shares) of Pattern Energy’s shares from Pattern Development 1.0.

PSP Investment will also co-invest $500 million in Pattern Energy’s projects under the company's ROFO with Pattern Development, along with investments in the Meikle, Mont Sainte-Marguerite and Panhandle 2 projects.

Acquisitions and Sale of a Minority Interest

In addition to the aforementioned initiatives, Pattern Energy will acquire a 51% interest for $65 million in the 179 MW Meikle project from Pattern Development 1.0. Further, the company will buy a 51% interest in the 143 MW Mont Sainte-Marguerite project from Pattern Development 1.0 for $40 million.

Moreover, Pattern Energy will sell 49% of the Class B interest in the 182 MW Panhandle 2 project to PSP Investments. This will result in a cash gain of $59 million for Pattern Energy.

Price Movement

In the last 12 months, Pattern Energy has outperformed the Zacks categorized Utility - Electric Power industry. The company’s shares rallied 21.8% compared with the industry’s gain of 4.3%.

The improved price movement of Pattern Energy is directly attributable to several acquisitions and Pattern Energy’s Right of First Offer (ROFO) on a pipeline acquisition opportunity from Pattern Development 1.0 and Pattern Development 2.0.
Since the company’s IPO, it has purchased 1,194 MW from Pattern Development 1.0 and has raised its ROFO list to a total of 2,156 MW.

Stocks to Consider

Pattern Energy currently carries a Zacks Rank #3 (Hold).

Better-ranked players from the Utility - Electric Power space include Unitil Corporation (NYSE:UTL) , Algonquin Power & Utilities Corp. (TO:AQN) and Avangrid, Inc. (NYSE:AGR) . All the three companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Unitil reported a positive earnings surprise 2.33% in first-quarter 2017. Its 2017 estimates have risen by 0.97% to $2.09 per share in the last 60 days.

Algonquin Power & Utilities reported a positive earnings surprise 11.76% in first-quarter 2017. Its current quarter 2017 estimates have risen by 25% to 10 cents per share in the last 60 days.

Avangrid reported a positive earnings surprise 7.35% in first-quarter 2017. Its 2017 estimates have risen by 0.45% to $2.21 per share in the last 90 days.

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