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On Thursday, Barclays (LON:BARC) initiated coverage on Brookfield Renewable Corp . (NYSE:BEPC) with an Equalweight rating and a price target of $31.00, aligning with InvestingPro data showing analyst targets ranging from $31 to $36. The new coverage comes amid observations of the company’s $9.66 billion market cap and its relationship with Brookfield Renewable Partners L.P. (NYSE:BEP).
Brookfield Renewable Corp. shares, structured to be economically equivalent to BEP LP units, offer identical dividends and distributions, with InvestingPro data showing a significant 5.24% dividend yield and a 5-year consecutive dividend growth streak. Shareholders have the flexibility to exchange BEPC exchangeable shares for BEP LP units at any time. Notably, BEPC shares have historically traded at a premium compared to BEP shares, a trend attributed to investor preference for corporate structures that issue 1099 tax forms over partnership structures that issue K-1 forms.
Throughout most of 2023 and the beginning of 2024, this premium remained in the mid to high single digits. However, it escalated to double digits in early May 2024, coinciding with increasing investor interest in AI and data center demand. This period also saw BEP sign a significant 10.5 GW framework agreement with Microsoft (NASDAQ:MSFT).
While Barclays acknowledges that a small premium might be justified due to the tax reporting differences between BEPC and BEP, the current wide premium raises questions. The firm anticipates that the premium will eventually revert closer to the average, leading to a narrowing of the valuation gap between BEPC shares and BEP units over time. The analysis suggests a cautious approach to the stock’s current valuation, with InvestingPro data showing a P/E ratio of 40.5x and indicating the stock is currently trading near its Fair Value. The company maintains a FAIR overall financial health score, though investors should note that analysts expect net income to decline this year.
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