The Dandelion Energy team installs a geothermal system in a home in New York.(c) 2022 - Credit: Courtesy of Dandelion Energy
Reinvention. That may seem like an obtuse, dramatic, or exaggerated term, but it is exactly what the housing industry needs to meet zero carbon goals in the next couple decades. According to the Center for Climate and Energy Solutions, heating water adds up to about 18% of a home’s energy use, and heating the air is the biggest expense in most homes, at up to 50% of energy bills in colder climates.
On the other hand, cooling a home accounts for nearly 6% of all the electricity produced in the US, and costs homeowners more than $29 billion every year. So combined, heating and cooling homes produces 441 million tons of carbon dioxide annually. The country has made massive commitments to changing those numbers, but conventional systems will not produce what is needed to reach net zero emissions by 2050.
So, manufacturers, designers and industry leaders are breaking through with technologies and ideas that are producing impressive results. One of those examples is Dandelion Energy, as it has identified and is realizing the opportunity for the stable, affordable, and reliable sustainability properties of geothermal heat pumps. Its unique proposition is leveraging the scale of its major investor, Lennar, while also offering financing to customers.
“Heating is really the biggest source of carbon emissions,” said Michael Sachse, the CEO of Dandelion Energy. “AC is electrified, but heating depends on natural gas, sometimes propane and other fuels. It’s a big problem that hasn’t really been solved.” Sachse estimates that 700,000 homes in the US use geothermal for heating and cooling, but it has been a very locally-driven and accidental development that calls on multiple stakeholders to design a system.
This gives Dandelion the opportunity to make it more broadly available with a one-stop solution by applying both data and software to the issue with WiFi-enabled monitoring. While the efficiency and the technology are appealing to homeowners, Sachse realizes that the economics must also make sense, which is why he brought financing in as part of the solution.
“Anytime you invest in something that lowers energy consumption, you spend more up front and then realize that benefit over time, making it a perfect product to finance,” he said. “We have been working on hardware solutions to bring costs down and make solutions more efficient, more comfortable, and easier to install. For instance, we’re examining how much ground loop to put in, which can be the biggest cost.”
The company currently operates in New York, Connecticut, and Massachusetts, where more than three million homes operate on propane or pellet heat and were never connected to the gas grid. In that region, the typical single-pump system for a 2,000-square-foot home would cost around $40,000. But that’s just the sticker price. There are huge savings to be realized.
First, there are the incentives from state and local governments, which layer on to the long-term energy savings. Sachse says that incentives and rebates could lower the cost nearly in half to $21,000. With exorbitant costs of heating and cooling, Dandelion’s solutions are attractive because they can help homeowners save up to 80% on heating and 30% on cooling bills, while helping reduce carbon emissions by up to 80%. Not only does the homeowner benefit, so does the supply chain.
With the recently introduced Inflation Reduction Act, the homeowner and the third-party installer both receive a 30% tax credit for 10 years. Plus, the Act also offers a domestic manufacturer rebate for an additional 10%, so the third party could get up to a 40% credit. In the spirit of reimagining the process, Sachse says that Dandelion Energy wants to create a leasing model to lower upfront costs for homeowners who may not benefit from tax credits.
Through a lease program, the company would own the ground loop in partnership with a capital group, which the homeowner could lease with an opportunity to buy. David Maruna, vice president of new construction at Pearl Certification, a home standardization program for higher performance, has been working with Dandelion and has certified its installations. “Dandelion does so much in the home, it can also have an outsized impact in the real estate transaction, which is a boon for the consumer,” he said. Continue Reading..
One of the hottest trends in finance is prepaid muni bonds structured to help local utilities buy decades worth of renewable electricity. They’re good for the environment, but even better for the banks that will profit from cheap financing, trading profits and federal tax breaks.
Socially responsible investing, marketed under the moniker “ESG” (short for environmental, social and governance), is a huge and growing business. In 2015 global ESG-related assets were $2.2 trillion, according to PwC, growing to $9.4 trillion in 2020 and nearly doubling in 2021 to $18.4 trillion. Sustainable bonds are a big slice of this pie.
Globally, over the last two years, an average of more than 400 bonds have been issued per quarter, totaling over $1.7 trillion, according to the London Stock Exchange’s Refinitiv group. European issuance is more than double that of the U.S., but a wave of new green bonds is coming here.
One particularly vibrant corner of this market: ESG-certified municipal bonds, such as those designed to help local communities prepay for decades’ worth of green electricity. According to Monica Reid, the founder of Kestrel, which charges “a fraction of a basis point” of a new bond deal’s face value to verify new issues as “social,” “green” or “sustainable,” there have been $85 billion worth of these municipal bonds issued in the U.S. in the last two years.
Reid’s Hood River, Oregon–based team of 27 analysts and engineers certified nearly a third of them. “Not everything is green or sustainable or socially beneficial because it’s financed with municipal bonds,” Reid says. “The muni market is also where coal ash dumps are financed, ports and airports. It’s where turnpikes and toll roads are financed.
We are very discerning. Internally we have a do-no-harm criteria. If repayment is from oil royalties or gambling revenues, that’s a problem.” Like so many environmental trends, this one started in California. Over the past 14 months enormous Wall Street banks such as Goldman Sachs and Morgan Stanley have persuaded ultra-green electric power agencies in Northern California to hand them roughly $2.7 billion, with $2 billion more in the works.
The power agencies raise that upfront cash by selling tax-free municipal bonds of the type Kestrel certifies. In return, the banks so far have promised to deliver into the California power grid 2.2 million megawatt hours per year of “green” electricity, sourced from solar, wind and hydropower.
There are many winners. The banks get cheap loans to spend on whatever they want. Californians, like the residents of 15 other states and the District of Columbia, get to pick their provider and can choose to put their money toward greener power. And investors can hold the bonds comforted by the knowledge that they have invested in something not only green but backed by a big bank’s guarantee.
The loser? Uncle Sam. If Morgan Stanley issued its own similarly structured corporate debt to raise funds, it would likely pay 6% or so interest, subject to federal tax. But when Morgan raises cash via a municipal prepaid green electricity deal at a 4% interest rate, it incurs no federal tax. On $3 billion in green power munis so far, that would equate to some $50 million a year in forgone tax revenue.
Maybe it’s worth it. After all, it’s a model that could quickly spread across the nation and help underwrite the development of enormous amounts of greener energy. But it also could add up to billions of dollars in hidden annual subsidies to rich Wall Street banks. That might not play well in Peoria.
California is one of 10 states that have enabled the creation of local electricity-purchasing cooperatives called Community Choice Aggregators. They have names like Marin Clean Energy and Silicon Valley Clean Energy, and were formed to enable Californians to buy power marketed as 100% “green.” In recent years these co-ops have entered multidecade contracts directly with the owners of solar fields and wind farms to buy their electricity output.
But these electric co-ops are utterly unequipped to manage a host of complex contracts with financial counterparties. So last year the Marin co-op joined with sister entities in places like Silicon Valley, Berkeley and Carmel to set up what’s known as a conduit issuer, the California Community Choice Financing Authority (CCCFA), essentially a shell agency with the power to issue tax-free municipal bonds.
In the last 14 months, CCCFA has issued $2.7 billion in three different Clean Energy Project Revenue Bond deals, with tax-exempt coupon rates of 4%, courtesy of Morgan Stanley and Goldman Sachs. The money goes toward prepaying for 30 years of renewable electricity. Prepaying comes with a discount. CCCFA members, for example, expect to save $7 million per year on their electricity purchases. Continue reading…..
The yield curve predicts U.S. recessions remarkably well. In March, the yield curve hinted at a U.S. recession. Today, the inversion is broadening as the Fed hikes rates. A U.S. recession may coming. Here’s how the yield curve works and why it matters to financial markets.
Economists aren’t prized for their forecasting skills. The yield curve, on the other hand, has a strong track record in calling recessions. The term structure of interest rates, which is the difference between short and long-bond yields, forecasts recessions relatively accurately. The yield curve has got a recession forecast wrong just once in the past 40 years according to Nicholas Burgess of Oxford University. That’s impressive.
The yield curve is also a leading indicator of recessions since it calls recessions up to 18 months before they occur. So, the yield curve is historically among the best tools for forecasting a recession. When the yield curve inverts, you should worry. Unfortunately, now’s the time to worry. Worse, if the Fed stays on course, that inversion will increase in depth and breadth.
The yield curve does provide a mass of information, changing minute by minute. That can be confusing, so the New York Fed researched how best to interpret it in this paper. They found that the spread between three-month and ten-year yields was most predictive of recessions, though it’s a pretty close call.
Ideally, in the researchers’ view, the spread should have a negative monthly average to predict a recession rather than just a temporary dip. It also appears that deeper inversion may make the signal more powerful. Not everyone agrees with that view entirely, but most take the view that short rates rising above long rates does not bode well for the U.S. economy and deeper and longer inversion can make the signal more robust.
Recent research from the U.S. Treasury finds that foreign yield curves have forecasting power too for U.S. recessions, so if other yield curves are inverted that can reinforce the signal from the U.S. yield curve being inverted.
Currently, the Canadian yield curve shows some inversion, but yield curves in Japan and Europe are generally not inverted. However, many central banks are expected to raise rates. That would raise the short end of the curve, creating inversion given the term structure of interest rates is quite flat globally. So the international picture may worsen.
Like any good forecast there’s also two clear reasons why the yield curve works. Knowing this is helpful. It means the forecast is less likely to be the result of accidental number crunching.
First when short term yields rise above longer term yields, that’s a big signal to banks. With an inverted yield curve, banks can make more profits from short-term lending, than from longer-term lending. That’s unusual. It can mean pulling back on financing bigger, longer term projects such as new factories and other big investment projects. That sort of pull-back in investments that help economic growth is exactly what we see in many recessions.
Secondly, the Fed raising rates is generally what pushes up shorter term interest rates. They often do this late in the economic cycle, when the economy may be starting to overheat. If we’re late in the economic cycle, that too can mean a recession is not far off. That’s exactly what’s happening now. High inflation and very low unemployment may be signs the U.S. economy is stretched currently.
Of course, we’re currently seeing one of the most aggressive patterns of rate hikes from the Fed in decades. Interestingly, the Fed knows about the yield curve’s forecasting power too. There’s a chance they ease off on hikes precisely because of the yield curve’s inversion. They don’t want a recession either. However, for the time being rampant inflation appears the more pressing concern for the Fed. It’s not an easy call, but the Fed may tolerate a recession to tame inflation.
You can see the latest U.S. Treasury yield curve data here. Currently it’s inverted from six-month out to ten-year maturities. That’s relatively broad inversion, and a bad sign for growth. In terms of the positives, the yield curve is fairly flat right now, not deeply inverted. Plus that all-important metric of 10-year less 3-month maturities is not inverted at the time of writing.
However, we can be reasonably confident inversion at the short end is coming soon if the Fed continues to hike short term rates as planned. Markets currently see the Fed raising rates around 2% over the rest of 2022, that’s almost certainly going create inversion of the yield curve when comparing three month to ten year yields. Of course, this assumes the long-end of rates doesn’t move up much, but unless long-term inflation fears really take hold, that seems unlikely.
That the yield curve is signaling recession is unsurprising. Other metrics agree. There’s a long list including: the current bear market in stocks; increasing talk about recessions; concerns about corporate earnings; early signs of weakness in housing; a softening jobs markets; together with the observation that U.S. economic growth was negative Q1. All signaling a pending recession. A recession may even already be here.
However, as an investor, it is important to remember that much of this may be priced in to markets. The very reason for weak stock returns over 2022 so far, may be the markets starting to adjust to a coming recession, or at least a reasonably mild one.
The severity of any future recession is important. Recession conjures up memories of the Great Financial Crisis of 2007-8 and the pandemic recession of 2020. As the two most recent recessions, that’s understandable. Remember though, those were both unusually severe recessions. So even if a recession is on the horizon, it may not be quite so disruptive as the two most recent ones.
Lastly, as of right now, the key metric of three-month yields hasn’t inverted below the 10-year yield. Many suspect that is the most robust recession flag. There’s still some hope we could dodge the bullet. However, if the Fed remain on their current aggressive rate trajectory, we may see that invert in later this year.
Despite brief periods of respite, the markets have mostly trended south in 2022, with the NASDAQ’s 28% year-to-date loss the most acute of all the main indexes.
So, where to look for the next investing opportunity in such a difficult environment? One way is to follow in the footsteps of the corporate insiders. If those in the know are picking up shares of the companies they manage, it indicates they believe they might be undervalued and poised to push higher.
To keep the field level, the Federal regulators require that the insiders regularly publish their trades; the TipRanks Insiders’ Hot Stocks tool makes it possible to quickly find and track those trades.
Using the tool we’ve homed in on 3 stocks C-suite members have just been loading up on – ones that have retreated over 40% this year. Let’s see why they think these names are worth a punt right now.
First out of the gates, we have Carvana, an online used car retailer known for its multi-story car vending machines. The company’s ecommerce platform provides users with a simple way to search for vehicles to purchase or get a price quote for a vehicle they might want to sell. Carvana also offers add-on services such as vehicle financing and insurance to customers.
The company operates by a vertically integrated model – that is, it includes everything from customer service, owned and operated inspection and reconditioning centers (IRCs), and vehicle transportation via its logistics platform.
Carvana has been growing at a fast pace over the past few years, but it’s no secret the auto industry has been severely impacted by supply chain snags and a rising interest rate environment.
These macro developments – along with a rise in high used-vehicle prices and some more company-specific logistics issues – resulted in the company dialing in a disappointing Q1 earnings report.
Although revenue increased year-over-year by 56% to $3.5 billion, the net loss deepened significantly. The figure came in at -$506 million compared to 1Q21’s $82 million loss, resulting in EPS of -$2.89, which badly missed the analysts’ expectation of -$1.42.
Such an alarming lack of profitability is a big no-no in the current risk-free climate, and investors haven’t been shy in showing their disapproval – further piling up the share losses post-earnings and adding to what has been a precipitous slide; Overall, CVNA shares have lost 88% of their value since the turn of the year.
With the stock at such a huge discount, the insiders have been making their moves. Over the past week, director Dan Quayle – yes, the former vice president of the United States – has picked up 18,750 shares worth $733,875, while General Counsel Paul Breaux has loaded up on 15,000 shares for a total of $488,550.
Turning now to Wall Street, Truist analyst Naved Khan thinks Carvana stock currently offers an attractive entry point with compelling risk-reward.
“We see a favorable risk/reward following reset expectations, a 50+% decline in stock post earnings/capital raise and analysis of the company’s updated operating plan. Our analysis suggests at current levels the stock likely reflects a bear-case outcome for 2023 profitability along with lingering concerns around liquidity (addressed in the operating plan). We see room for meaningful upside to 2023 EBITDA under conservative base-case assumptions, with Stock’s intrinsic value >2x current levels. At ~1x fwd sales, we find valuation attractive,” Khan opined.
To this end, Khan rates CVNA a Buy, backed by an $80 price target. The implication for investors? Upside of a hefty 200%. (To watch Khan’s track record, click here)
What does the rest of the Street make of CVNA right now? Based on 7 Buys, 13 Holds and 1 Sell, the analyst consensus rates the stock a Moderate Buy. On where the share price is heading, the outlook is far more conclusive; at $83.74, the average target makes room for one-year gains of 214%. (See CVNA stock forecast on TipRanks)
We’ll now switch gears and move over to the semiconductor industry, where Wolfspeed is at the forefront of a transformation taking place – the transition from silicon to silicon carbide (SiC) andgallium nitride (GaN). These wide bandgap semiconductor substrates are responsible for boosting performance in power semiconductors/devices and 5G base stations, while the company’s components are also used in consumer electronics and EVs (electric vehicles), amongst others.
Like many growth names, Wolfspeed is still unprofitable, but both the top-and bottom-line have been steadily moving in the right direction over the past 6 quarters. In the last report – for F3Q22 – WOLF’s revenue grew by 37% year-over-year to $188 million, albeit just coming in short of the $190.66 million the Street expected. EPS of -$0.12, however, beat the analysts’ -$0.14 forecast. For F4Q22, the company expects revenue in the range of $200 million to $215 million, compared to consensus estimates of $205.91 million.
Nevertheless, companies unable to turn a profit in the current risk-free environment are bound to struggle and so has WOLF stock. The shares have declined 41% on a year-to-date basis, and one insider has been taking note. Earlier this week, director John Replogle scooped up 7,463 shares for a total of $504,797.
For Wells Fargo analyst Gary Mobley, it is the combination of the company’s positioning in the semiconductor industry and the beaten-down share price which is appealing.
“We view WOLF as one of the purest ways in the chip sector to play the accelerating market transition to pure battery electric automotive power trains,” the analyst wrote. “Not only have WOLF shares pulled back in the midst of the tech-driven market sell-off, but we are also incrementally more constructive on WOLF shares given we are on the cusp of the company’s New York fab ramping production, a game changer for WOLF as well as the SiC industry, in our view.”
Standing squarely in the bull camp, Mobley rates WOLF an Overweight (i.e. Buy), and his $130 price target implies a robust upside of ~99% for the next 12 months. (To watch Mobley’s track record, click here)
The Wall Street analysts are taking a range of views on this stock, as shown by the 10 recent reviews – which include 4 Buys and 6 Holds. Added up, it comes out to a Moderate Buy analyst consensus rating. The average price target, at $109.59, implies ~68% one-year upside from the current trading price of $65.40. (See WOLF stock forecast on TipRanks)
Lastly, let’s have a look at a household name. The Home Depot is the U.S.’ biggest home improvement specialty retailer, supplying everything from building materials, appliances and construction products to tools, lawn and garden accessories, and services.
Founded in 1978, the company set out to build home-improvement superstores which would dwarf the competitors’ offerings. It has accomplished that goal, with 2,300 stores spread across North America and a workforce of 500,000. Meanwhile, the retailer has also built a strong online presence with a leading e-Commercesite and mobile app.
Recently, even the largest retail heavyweights have been struggling to meet expectations, a development which has further rocked the markets. However, HD’s latest quarterly update was a positive one.
In FQ1, the company generated record sales of $38.9 billion, beating Wall Street‘s $36.6 billion forecast. The Street was also expecting a 2.7% decline in comps but these increased by 2.2%, sidestepping the macroeconomic headwinds. There was a beat on the bottom-line too, as EPS of $4.09 came in above the $3.68 consensus estimate.
Nevertheless, hardly any names have been spared in 2022’s inhospitable stock market and neither has HD stock; the shares show a year-to-date performance of -31%. One insider, however, is willing to buy the shares on the cheap.
Last Thursday, director Caryn Seidman Becker put down $431,595 to buy a bloc of 1,500 shares in the company.
She must be bullish, then, and so is Jefferies analyst Jonathan Matuszewski, who highlights the positive noises made by management following the Q1 results.
“We came away from the earnings call with the view that management’s tone was more bullish on the US consumer than it has been in recent history. With backlogs strong across project price points, consumers trading up, and big-ticket transactions sequentially accelerating on a multi-year basis, we believe investor reservations regarding slowing industry sales growth are premature,” Matuszewski opined.
Matuszewski’s Buy rating is backed by a $400 price target, suggesting shares will climb 39% higher over the one-year timeframe. (To watch Matuszewski’s track record, click here)
Most on the Street also remain in HD’s corner; the stock has a Strong Buy consensus rating built on a solid 18 Buys vs. 4 Holds. The forecast calls for 12-month gains of 24%, given the average target clocks in at $357.35. (See HD stock forecast on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Global dealmaking is set to maintain its scorching pace next year, after a historic year for merger and acquisition (M&A) activity that was fueled largely by easy availability of cheap financing and booming stock markets.
Global M&A volumes topped $5 trillion for the first time ever, comfortably eclipsing the previous record of $4.55 trillion set in 2007, Dealogic data showed. The overall value of M&A stood at $5.8 trillion in 2021, up 64% from a year earlier, according to Refinitiv.
Flush with cash and encouraged by soaring stock market valuations, large buyout funds, corporates and financiers struck 62,193 deals in 2021, up 24% from the year-earlier period, as all-time records tumbled during each month of the year.
Investment bankers said they are expecting the dealmaking frenzy to continue well into next year, despite looming interest rate hikes.Higher interest rates increase borrowing costs, which may slow down M&A activity. However, deal advisers still expect a flurry of large mergers in 2022.
Accommodative monetary policies from the U.S. Federal Reserve fueled a stock market rally and gave company executives access to cheap financing, which in turn emboldened them to go after large targets.
The United States led the way for M&A, accounting for nearly half of global volumes – the value of M&A nearly doubled to $2.5 trillion in 2021, despite a tougher antitrust environment under the Biden administration.
The largest deals of the year included AT&T Inc’s (T.N) $43 billion deal to merge its media businesses with Discovery Inc (DISCA.O); the $34 billion leveraged buyout of Medline Industries Inc; Canadian Pacific Railway’s (CP.TO) $31 billion takeover of Kansas City Southern (KSU.N) ; and the breakups of American corporate behemoths General Electric Co and Johnson & Johnson (JNJ.N) .
According to a survey of dealmakers and advisers by Grant Thornton LLP, over two-thirds of participants believe deal volumes will grow despite challenges posed by regulations and the pandemic.
Deals in sector such as technology, financials, industrials, and energy and power accounted for the bulk of M&A volumes. Buyouts backed by private-equity firms more than doubled this year to cross the $1 trillion mark for the first time ever, according to Refinitiv data.
Despite a slowdown in activity in the second half, dealmaking involving special purpose acquisition companies further boosted M&A volumes in 2021. SPAC deals accounted for about 10% of the global M&A volumes and added several billions of dollars to the overall tally.
Analysts say the U.S. economy has proven resilient in the face of pandemic-related challenges, and many expect the global economy will still expand at a well-above-trend pace.
After initially tumbling in December, world stocks recovered over the holiday period as investors became reassured economies could handle the surge in Omicron coronavirus cases, and are heading back toward record highs.
“As far as COVID is concerned, for now, market participants may stay willing to add to their risk exposures, and perhaps push equity indices to new highs, as several nations around the globe held off from imposing fresh lockdowns, despite record infections around the globe the last few days,” said Charalambos Pissouros, head of research at Cyprus-based brokerage JFD Group.
The dollar index fell 0.418% on Friday. On Wall Street, New Year’s Eve trading ended near record highs on Friday. read more
All three major U.S. stock indexes scored monthly, quarterly and annual gains, notching their biggest three-year advance since 1999.
Investors have held onto expectations for resilience in the global recovery into 2022 and the prospect of further gains if money remains cheap and corporate profitability high.
This year’s “everything rally” has seen a wall of cheap central bank cash, government stimulus and strong economic rebounds out of the pandemic make it hard not to profit from soaring asset prices.
U.S. stocks have powered the global rally as record-breaking earnings figures from Big Tech companies excited investors. This week the S&P 500 hit another record high.
Get to know everything about what Post-Merger Integration (PMI) means, 4 Steps to PMI Success and possible challenges of PMI.
Post-merger integration is the process of unifying two entities and their assets, people, tasks, and resources in a manner that creates the most value for the future of the enterprise by realizing efficiencies and synergies.
From an IT perspective, PMI is a complex process requiring the leadership of enterprise architects to ensure a smooth process. According to the 2021 LeanIX M&A Report, nearly 90% of EAs are involved in post-merger integration, with the following use cases named as most prevalent.