National Bank Financial analyst Rupert Merer thinks the shift toward green energy is “unstoppable” and sees “room for upside” in 2022, expecting an improved performance with stocks sitting at 52-week lows.
“Until recently, leadership in the energy transition has come from a few pioneers,” he said in a research report released Tuesday. “However, with a growing move towards decarbonization, participation in the transition has expanded. In 2022, this trend should continue and could support new partnerships and investment opportunities for energy transition focused stocks, and market consolidation. After a strong ‘20, stocks in our coverage were down 20 per cent on average in ‘21, with rising yields and a move out of green and growth stocks. Weakness has continued, with much of our coverage trading near 52-week lows. Here, we review some themes which should impact our universe in ‘22. With momentum behind the energy transition, the sector has good visibility on growth for decades, but could see headwinds from rising yields and continued impacts from the pandemic in the near-term.”
Mr. Merer emphasized the transition “belongs to everyone and will continue to accelerate,” however, after revising his valuations to account for recent underperformance, he trimmed his target for a series of stocks in his coverage universe.
His changes include:
Lion Electric Co., (“outperform”) to US$14 from US$17. Average: US$18.18.
“2022 should be a very active year for LEV, notably with the launch of eight new vehicle models and the start of operation at its 20,000 vehicle per yearr manufacturing facility in Illinois, which they just officially took possession, and its new battery facility and R&D center in Mirabel, both planned for H2′22,” he said. “However, our focus for the first half of 2022 will be on the enduring supply chain issues that characterized the second half of 2021. As it works through its supply issues, will look for the ramping-up of its production capacity in Saint-Jrme and in Illinois as it looks to deliver half of the vehicles in its order book by the end of the year. We believe that recently announced government incentives in both the U.S. and Canada should encourage companies to convert their fleets to electric and could support new orders for LEV. Moreover, while most recent incentives should drive more electric school bus orders in the near-term, we expect electric truck orders to represent a growing share of LEV’s order book as the truck market is 10 times larger.”