Shares of Brookfield Renewable Corporation (NYSE:BEPC) slumped 28% during the first half of 2021, according to data provided by S&P Global Market Intelligence. That’s a much deeper decline than Brookfield Renewable Partners (NYSE:BEP), which has shed 10.6% of its value this year.
Here’s a closer look at what’s weighing on shares of these related renewable energy producers in 2021.
Brookfield Renewable Corporation and Brookfield Renewable Partners are economically equivalent entities. That means one share of the corporation has the same distribution as a partnership unit and is exchangeable on a 1-to-1 basis.
Despite that economic equivalence, investors — including institutional ones like index funds that can’t own partnership units — have favored buying corporation shares since their creation last year. As a result, shares of the corporation traded at a higher value than partnership units:
That valuation disconnect was at its widest point at the beginning of this year. However, it has narrowed considerably since that time. That’s due in part because their parent company, Brookfield Asset Management (NYSE:BAM), sold some of its shares in Brookfield Renewable Corporation earlier this year to provide the market with more liquidity. That has helped narrow the valuation gap between these two similar entities.
Another issue weighing on the value of the Brookfield Renewable entities is that analysts have cooled on the company following its red-hot showing in 2020. Several analysts have either lowered their price target or downgraded Brookfield this year. For example, in March, RBC Capital reduced its price target from $55 to $48 after updating its valuation model to reflect a slightly lower value for Brookfield’s development program. Meanwhile, in May, an analyst from R.F. Lafferty downgraded Brookfield Renewable Partners to hold from buy while reducing their price target from $35 to $49. The driving factor was the company’s first-quarter earnings, which missed the consensus forecast. Barclays also lowered its price target in May. The bank’s analyst cut it from $52 to $44 after the company only grew its distribution by 5% this year, instead of 6%.
Brookfield Renewable has cooled off a little bit in 2021. However, that’s due entirely to some market mechanics and short-term thinking. Longer-term, Brookfield has a bright future as it expects to grow its earnings per share by as much as 20% per year through 2025. That should enable the company to create a lot of value for investors in either entity over the coming years, making this year’s slide look like a compelling buying opportunity.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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