Stock Markets Analysis & Opinion

Hannon Armstrong Sustainable Infrastructure Capital for Income

A string of upward price target revisions put Hannon Armstrong (NYSE:HASI) Sustainable Infrastructure Capital (NYSE: HASI) on Marketbeat’s radar. The analysts, pressuring the stock lower in 2023, reversed course and issued six price target revisions since January 1st, with the latest out May 13th from TD Cowen.

TD Cowen raised its price target to $40, significantly higher than the consensus of $33 and near the high end of the range due to a solid Q1 result. More significantly, the activity helped to put the stock on Marketbeat’s list of Top Rated Dividend Stocks, highlighting its value and yield.

The top-rated dividend stocks screen tracks dividend stocks with the highest average analyst rating for ratings over the trailing twelve-month period. The highest score is 4.0 or 100% Strong Buy ratings from at least five analysts, while the lowest is 1.0 or 100% Strong Sell. HASI stock is ranked in 84th position with a rating of 2.75. Eight analysts rate the stock as a Moderate Buy and see it advancing 5% to nearly 45% at the range’s high end, a target set recently.

Regarding the value and yield, the stock trades with a P/E of 12X with a solid forecast for growth. That is about half the valuation for the S&P 500, which pays less than 25% of HASI’s yield. Hannon Sustainable Infrastructure pays a dividend worth 5.2% in yield with shares near $32; the distribution is also expected to grow.

Distributions aren’t growing fast, but the pace may accelerate over the coming years. The company forecasted 8% to 10% EPS growth for the next three years and a dividend payout ratio between 60% and 70%. The payout ratio is running near 80% on a TTM basis but should fall to nearly 65% by year-end, leaving the door open to a mid-to-high-single-digit increase next year.

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What is Hannon Armstrong Sustainable Infrastructure Capital?

Hannon Armstrong Sustainable Infrastructure Capital invests in various vehicles, including debt and equity. The investments aim to generate revenue and income for shareholders while improving the planet. To date, the company’s efforts have reduced CO2 emissions by 6.6 million metric tonnes and water use by 6.3 billion gallons annually while impacting the lives of more than 300,000 children through energy and resource-efficient upgrades to schools and transportation.

The company was founded in 1981 and operated as a REIT for many years. The firm decided to give up the REIT election this year to focus on its investment goals better. The switch will have little impact on investors other than how it reports and pays dividends. C-Corporations are taxable, so investors have no pass-through liability, and the company can pay dividends as they see fit rather than maintain the minimum requirement. The takeaway for investors is that the company targets a sustainable payout ratio of 60% to 70% and earnings growth.

Hannon Growth Accelerates in Q1

Hannon Armstrong Sustainable Infrastructure Capital had a solid quarter in Q1, with growth well into the double-digits in all metrics. The company reported $105.8 million in net revenue, driven by a 60% increase in interest income. Interest income is driven by a 36% increase in the portfolio size and a 24% increase in assets under management. GAAP NII fell due to the accounting change, but the adjusted results are much better, up 37% and expected to remain strong.

Shares of HASI began to rebound late in 2023 and accelerated the move following the Q1 2024 results. The market surged nearly 25% in a week double the average volume to set a new multi-year high. The new high has the market above critical resistance and set up for a reversal. Investors stand to win even if the reversal is from down to sideways. The bottom of the range looks well-supported, the stock is cheap to own, and the dividend alleviates risk. Assuming the company continues to build traction and follows through on its forecast, the stock price could double on price-multiple expansion in the next few years.

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