In a note this week, Morgan Stanley analysts revealed the firm has one clean technology stock they see as a buy.
Bloom Energy Corp (NYSE:BE) was labeled the top pick in the sector at the investment bank, while previously Overweight-rated Stem Inc (NYSE:STEM) was cut to Equal Weight. Here's why:
BE is a key beneficiary of several key themes in the sector, according to the analysts. These include the growing "economic wedge" or value proposition of distributed energy, rising grid instability, grid capacity limitations, and the $3/kg clean hydrogen tax credit included in the IRA.
"The growing demand for BE's fuel cell technology, coupled with its ability to consistently reduce its product costs by 10%-15% per year, should drive meaningful margin expansion (+751 bps from 2022-2025) and FCF generation in 2024 and 2025, which is not reflected in current valuation with the stock trading at a 37% discount to hydrogen peers on 2025 EV/Sales," the analysts wrote.
Morgan Stanley sees the clean hydrogen tax credit guidelines as an upcoming catalyst for the stock as it could catalyze meaningful electrolyzer order announcements and provide upside to consensus revenue expectations from 2025 to 2030.
STEM was downgraded despite being one of Morgan Stanley's preferred energy storage names due to its software-heavy focus.
However, the analysts explained that based on YTD earnings, they see risks to the company's ability to achieve its 65% to 85% service and software revenue growth and EBITDA-positive target in the second half of 2023.
"In this environment, we see an elevated likelihood of risk to the downside in a stock where there is uncertainty around the company's path to profitability, thus driving our decision to move to Equal Weight," the analysts stated.
Morgan Stanley also named Plug Power (NASDAQ:PLUG), SunPower (NASDAQ:SPWR), TPI Composites, Inc. (NASDAQ:TPIC), SolarEdge Technologies (NASDAQ:SEDG), Enphase Energy (NASDAQ:ENPH), and First Solar (NASDAQ:FSLR) as other stocks in the sector it rates at Equal Weight.