Image Shown: Shares of Ameresco Inc have boomed higher since we first wrote about the company on V.com back in August 2020. We include Ameresco as an idea in our ESG Newsletter portfolio and see ample room for further capital appreciation upside.
By Callum Turcan
On November 1, Ameresco Inc (AMRC) reported third-quarter 2021 earnings that missed top-line consensus estimates but beat bottom-line numbers. The company also raised its full-year guidance (again) for 2021 which saw it increase the midpoint of its revenue, gross margin, non-GAAP adjusted EBITDA, and non-GAAP EPS forecast. Ameresco also raised its full-year guidance for 2021 when it published its first quarter 2021 earnings report. We include Ameresco as an idea in the new ESG Newsletter portfolio (more on that publication here), and shares of AMRC have surged higher in recent months. On the website, we first wrote about Ameresco back in August 2020 (link here), and shares of AMRC have roughly tripled since then as of this writing.
Overview
Ameresco develops renewable energy projects, usually near its clients’ existing operations, and will at times also own and operate the related assets. The company also provides services to its clients that aim to boost the energy and overall efficiency of their operations. Ameresco’s goal is to ultimately cut its customers’ operating and maintenance (‘O&M’) expenses while also enabling those entities to tout their green credentials.
On our proprietary ESG scoring system (on a scale of 1-100, with 100 being the best), Ameresco scores a solid 96 rating. View the template of our ESG rating system here (xls). In our view, Ameresco is well-suited to capitalize on the growing desire of corporates, institutions, and government entities to appear sustainable while reducing their O&M expenses, and may benefit from the recently passed $1+ trillion US infrastructure bill (which includes funding for various green energy initiatives). However, our capital appreciation thesis for Ameresco was not based on the US infrastructure bill getting signed into law, and any upside would be entirely incremental to our thesis.
Guidance and Financial Update
In 2021, Ameresco intends to post $1.19-$1.24 billion in revenue, generate a gross margin of 19.0%-19.5%, post $145-$155 million in non-GAAP adjusted EBITDA, and generate $1.39-$1.47 in non-GAAP EPS. For reference, Ameresco posted just over $1.0 billion in GAAP revenue, had a GAAP gross margin of ~18.2%, generated around $118 million in non-GAAP adjusted EBITDA, and posted $1.18 in non-GAAP EPS in 2020. The company’s latest guidance for 2021 indicates Ameresco forecasts that its financial performance will improve across the board this year versus levels seen last year, one of the reasons why we are big fans of the firm.
Ameresco raised its guidance in part because it has done a stellar job winning new contracts that significantly enhance its growth runway. For instance, in early November 2021, Ameresco announced a deal with Southern California Edison (‘SCE’), a utility, “to design and build three grid scale battery energy storage systems (‘BESSs’) at existing substation parcels throughout SCE’s service territory in California” according to the press release. SCE is owned by Edison International (EIX).
The press release went on to state that “this aggressive plan will significantly increase reliability of the grid with a targeted commercial operation date in August 2022” and that “the contracted systems will be located at three distinct distribution-level substation parcels in SCE’s service territory to efficiently provide for the electricity demands in the San Joaquin Valley, Rancho Cucamonga and nearby communities and the Long Beach area. The systems equate to 537.5 [megawatts] with a four-hour duration, for a total of 2,150 [megawatt hours].” This is quite a big project.
What makes this deal particularly noteworthy is that it represents Ameresco’s push into significantly larger utility-scale renewable energy projects, as compared to smaller scale endeavors that have historically been the norm. As this deal was entered into after Ameresco’s latest earnings report, it has not yet been reflected in its historical financial performance.
Ameresco has also done a stellar job winning over smaller contracts as well. That includes its partnership with the city of Seabrook in Texas to install over 4,100 water meters and advanced metering infrastructure (the deal was announced on September 8) that aims to save the city over $50,000 per month by replacing aging infrastructure. Another example includes Ameresco’s partnership at the US Army Reserve’s Fort Hunter Liggett that involves developing an electrical distribution microgrid at the facility (the deal was announced on May 25).
Back on July 15, Ameresco announced it had achieved commercial production at a landfill gas to renewable natural gas plant development. The facility is located at Republic Services Inc’s (RSG) McCarty Road Landfill in Houston, Texas. As an aside, we include Republic Services as an idea in the Dividend Growth Newsletter and ESG Newsletter portfolios and continue to be huge fans of the waste management company.
In the UK, Ameresco announced a deal with Bristol City Council on November 10 to design, supply, and install solar photovoltaic (‘PV’) systems across the cities of Bristol and North Somerset. Back in July 27, Ameresco announced that it had completed a roof mount solar PV project with the UK’s Ministry of Justice. While both projects were relatively small, these endeavors highlight Ameresco’s ability to meet green energy development needs across the globe. Its operational execution has impressed of late. On May 5, Ameresco announced it had completed a wind farm project in Greece at the municipality of Kefalonia (an island in the country).
These are just a few examples of the numerous deals Ameresco has announced or completed this year. At the end of September 2021, Ameresco had a total project backlog of $2.4 billion including $1.6 billion in awarded project backlog and $0.8 billion in contracted project backlog. The firm had almost 410 megawatt electric (‘MWe’) assets under development and almost 320 MWe in operating assets at the end of the third quarter of 2021. Its asset base and operational footprint continue to grow robustly.
In past articles, we covered how Ameresco’s balance sheet and cash flow statements can be a tricky read (please see our August 2020 article for more info on that subject). Here, we would like to highlight how Ameresco’s GAAP revenues rose by 11% year-over-year during the first nine months of 2021, reaching $800 million, while its GAAP gross margin expanded over 185 basis points during this period. Ameresco reported $63 million in GAAP operating income during the first nine months of 2021, up 35% year-over-year, aided by gross margin expansion (its GAAP operating margin rose by almost 140 basis points during this period as the firm scaled up its operating expenses to meet growing demand).
Concluding Thoughts
Ameresco has been firing on all cylinders of late, and we expect this momentum will continue going forward. The company has tremendous capital appreciation upside and complies with the highest ESG investing standards. As of this writing, shares of AMRC are up almost 85% year-to-date, and we see room for shares of Ameresco to climb even higher.
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Callum Turcan does not own shares in any of the securities mentioned above. Utilities Select Sector SPDR Fund (XLU) is included in Valuentum’s simulated High Yield Dividend Newsletter portfolio. Ameresco Inc (AMRC) and NextEra Energy Inc (NEE) are both included in Valuentum’s simulated ESG Newsletter portfolio. Republic Services Inc (RSG) is included in both Valuentum’s simulated Dividend Growth Newsletter portfolio and simulated ESG Newsletter portfolio. Some of the other companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.