What to Watch When TerraForm Power Reports Its Q4 Results
TerraForm Power (NASDAQ: TERP) has been working hard for the past year to shore up its financial profile so that it can create value for investors. The renewable energy generating company made excellent progress on those efforts last year, powered in part by a needle-moving acquisition of a wind and solar platform in Western Europe.
The company should show continued progress on its turnaround efforts during the fourth quarter. That's one of a couple of things investors should keep an eye on when that report hits the wires later this week.
Look for continued progress on its strategy
In addition to boosting its balance sheet, TerraForm Power has been working on ways to increase its cash flow. The company did that in a big way last year by acquiring Spanish wind and solar company Saeta. It has also been working on a variety of internal initiatives to expand earnings from its legacy assets and reduce costs. For example, the company recently signed long-term service agreements with General Electric (NYSE: GE) that will cover its entire wind fleet in North America, which should reduce costs and improve power output starting in the first half this year.
The company recently launched another process to cover Saeta's wind fleet in Europe, as it seeks outcomes similar to the GE agreement by targeting 15% savings compared to existing costs. TerraForm had hoped to sign this deal during the fourth quarter, so investors should look for details on that agreement in the report.
Investors should also keep an eye on the company's solar performance improvement plan that it started last summer. TerraForm noted that it had identified several opportunities to boost production and was working on implementing a strategy to achieve this goal. It aims to get its fleet to its targeted long-term average by the end of the first quarter.
See if it has any more acquisitions lined up
TerraForm has been working to build a pipeline of acquisition opportunities so that it can continue expanding its renewable energy portfolio and cash flow. The company believes that it could be a consolidator in the Spanish renewables market since private, cash-strapped developers own most of these assets. The company believes it can use its improving balance sheet to steadily acquire assets from developers so that they can build more projects.
The company has also been evaluating opportunities to invest in the Mexican renewables market. TerraForm pointed out in its third-quarter earnings report that a recent decision to cancel a new airport in Mexico City heightened uncertainty, likely deterring some foreign companies from investing in the country. That could open the door for TerraForm to gain a foothold in the country at an attractive price.
While TerraForm Power doesn't need to make any acquisitions to meet its near-term growth forecast, it will eventually have to do more deals that will expand its cash flows so that it can achieve its longer-term dividend growth plan. That's why investors should see if the company made any progress on the deal front during the fourth quarter.
Looking for continued progress
TerraForm Power's turnaround strategy started paying dividends during the third quarter, and that should have continued in the year's final period. Ideally, the company will have signed another long-term service agreement to drive down costs at its European wind operations as well as lined up its next deal. These moves would improve the company's chances of achieving its goal to grow its 6.1%-yielding dividend at a 5% to 8% annual rate through at least 2022.
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Matthew DiLallo owns shares of General Electric and TerraForm Power. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.