A Second Wind With Vestas (VWDRY)

A Second Wind With Vestas (VWDRY)

Wind farm on green pasture

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Based in Copenhagen, Denmark, Vestas is a manufacturer of wind turbines. The company started producing wind turbines in 1979 and has since gained a market-leading position, with more than 20% of the global installed base of wind turbines. These 56,860 turbines in 75 countries on six continents Vestas logoproduce enough electricity to power more than 80 million European homes. The company estimates that its products have reduced CO2 emissions by 75 million tons.

The cost of wind power generation has fallen sharply in recent years, down 57% from 2010 through 2016. Wind power generation is now competitive with conventional sources, even without subsidies or tax credits.

The graph below reflects the comparative costs in the U.K. currently. It seems likely, however, that the costs of wind and solar power will continue to fall, while fossil fuel costs will not (and will even rise over time as scarcity increases).

Vestas figure

Note: Pv c-Si refers to crystalline silicon photovoltaic solar cells. CHP stands for “combined heat and power.”

In the U.S., the wind industry now employs almost 102,000 workers, up 32 percent from 2015, according to the U. S. Bureau of Labor Statistics. Wind service technician jobs are projected to grow by 108% between 2014 and 2024, according to the Bureau.

Vestas continues to invest in research and development to stay competitive. Its turbines are 100 times more efficient than they were 25 years ago. These technological advances are making projects more feasible in areas with medium and lower wind speeds.

The company is in excellent financial condition and is quite profitable. Vestas has cash net of debt of $2.1 billion, it generates more cash than is needed for ordinary operations, and it has a 31% return on shareholders’ equity.

Vestas Newsletter Chart

Vestas has a strong sustainability story. Wind power produces energy with no greenhouse gases and leaves no hazardous waste as a poisonous legacy for future generations. The “social side” of Vestas’s sustainability profile could use some improvements. The company’s approach to community outreach around site development seems weak, which may have contributed in part to an ongoing lawsuit concerning the Lake Turkana Wind Power Project in Kenya. (Vestas has since divested its ownership stake in the project.) We also find it curious that Vestas’s female employees are only 14% of the total workforce; it would be helpful for the company to be more forthright about its efforts to diversify and remove obstacles to female retention and advancement.

Vestas is a reasonably priced market leader in renewable energy. After the stock has sold off from the high it reached last year, we think it’s an unusual opportunity in a sector that otherwise doesn’t have the financial strength of Vestas.

 

Dividend Yield: 1.4%
52-Week Low–High: $18.47–$28.70
Risk: Average
Market Cap: $16 billion
Price: $24.50

www.vestas.com

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