Why the recent rating change on HA Sustainable Infrastructure Capital matters

A recent upgrade by Zacks, reflecting increased optimism about earnings prospects, has put HA Sustainable Infrastructure Capital (HASI) back on the radar for many investors and appears to have drawn fresh buying interest.

HASI’s share price has climbed 25.93% year to date and 16.25% over the past 90 days, while the 1 year total shareholder return of 74.49% points to strong momentum building around the story.

If this kind of renewed interest in sustainable infrastructure has caught your eye, it could be a good moment to widen your search and check out 29 power grid technology and infrastructure stocks

With HASI up 74.49% over 1 year and trading at a 12% discount to the average analyst price target, plus an indicated 19% intrinsic discount, you have to ask: is there still a buying opportunity here, or is the market already pricing in future growth?

Price to earnings of 28x: Is it justified?

On a P/E of 28x at a last close of $40.07, HA Sustainable Infrastructure Capital looks expensive compared with peers and with its own estimated fair multiple.

The P/E ratio compares the current share price with earnings per share, so a higher figure usually means the market is willing to pay more today for each dollar of earnings. For HASI, that 28x P/E sits against a peer average of 13.8x and an estimated fair P/E of 13x. This points to a valuation that is materially richer than both direct peers and the level that regression analysis suggests could be more typical.

Relative to the wider US Diversified Financial industry average P/E of 17.3x, HASI also trades on a premium, indicating the market is attaching a higher price to its earnings than it does for many other diversified financial names. If sentiment, growth or quality expectations shift closer to the fair ratio implied by the SWS model, there is room for the multiple to move toward that 13x level over time.

Result: Price-to-earnings of 28x (OVERVALUED)

However, this premium P/E and reliance on US sustainable infrastructure projects leave the story vulnerable if sentiment toward higher valuations or climate focused assets weakens.

Another view: DCF points to upside

While the 28x P/E suggests HASI looks expensive next to peers, the SWS DCF model tells a different story. On that measure, the shares at $40.07 sit below an estimated future cash flow value of $49.46, implying the market price does not fully reflect those projected cash flows yet. Which signal do you weigh more heavily: the rich earnings multiple or the discount to modeled cash flows?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out HA Sustainable Infrastructure Capital for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 59 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Given this mix of optimism and concern around HASI, it makes sense to review the numbers yourself and decide where you stand. To get a balanced view of the potential upside and the key issues investors are watching, start with the 2 key rewards and 3 important warning signs

Looking for more investment ideas?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.