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PPL Corporation PPL announced that it has acquired Safari Energy LLC, a leading provider of solar energy solutions. Safari Energy provides a turnkey solution to its customers, starting from financing their projects to designing, engineering and construction.
The company management did not divulge details about the purchase consideration but expects this acquisition to be accretive to its earnings immediately. However, the acquisition is not expected to make a meaningful contribution to the company’s earnings per share till 2020.
Acquisition Synergy & Future Plan
With the buyout of Safari Energy, the company would be able to avail of low-risk opportunity in renewable & clean energy segment. The acquisition would enable it to diversify its revenue components and the customer base. The transaction would help PPL Corporation gain expertise in turnkey projects for serving clients, who need support right from the project’s seed funding till its construction and completion.
The company planned to replace its Kentucky’s coal fired generation plant over time with a mix of renewables and natural gas. It expects to incur approximately $15.41 billion of capital investment over the 2018-2022 period and projects to recover nearly 80% of the annual investment within a year, thereby lending a clear visibility to its earnings growth.
Solar Industry Outlook
Per U.S. Energy Information Administration (EIA), the source of energy from renewables increased over the years. Of 55% of the total energy generated, nearly 21 gigawatt (GW) added in the United States during 2017, was from a renewable source. Also, 22% of the total electricity generation in the United States comes from a renewable source as of Feb 2018.
In 2017, electricity generation from solar resources touched nearly 77 million megawatthours (MWH) in the United States and by 2018 end, EIA expects an additional 5,067 MW of solar power to come online. According to the forecast, solar capacity is anticipated to grow by 127 gigawatt (GW) from 2020 to 2050. Also, electricity generation will likely account for nearly 14% of the total energy output to be generated during the same period.
Per Solar Energy Industries Association (SEIA), the consistent growth over the years across some of the renewable energy sources is attributable to U.S. federal policies. Electricity generation from solar enjoys a special Federal Solar Tax Credit, scheduled to expire by 2022. This tax credit has enabled the growth of solar power generation companies as the credit allowed to power generators is transferred to end users via lower solar prices.
Since the release of the news, shares of PPL Corporation have lost 1.3% compared with its industry’s decline of 1.9%.
Zacks Rank & Key Picks
PPL Corporation currently has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks from the same industry are as follows:
CMS Energy Corporation CMS holds a Zacks Rank #2 (Buy). It reported first-quarter 2018 adjusted earnings of 86 cents per share, surpassing the Zacks Consensus Estimate of 82 cents by 4.9%. Currently, the company has an Earnings ESP of +13.89%.
Xcel Energy Inc. XEL carries a Zacks Rank of 2. The company released first-quarter 2018 adjusted earnings of 57 cents per share, beating the consensus mark of 51 cents by 11.8%. Currently, the stock has an Earnings ESP of +2.15%.
NextEra Energy Inc. NEE has a Zacks Rank #3 (Hold). The company posted first-quarter 2018 adjusted earnings of $1.94 per share, outpacing the consensus estimate of $1.78 by 9%. Currently, the stock has an Earnings ESP of +2.81%.
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