This sustainability-focused real estate stock can rally more than 80%, Baird says

Published Tue, Oct 10 20237:14 AM EDTUpdated Tue, Oct 10 202311:05 AM EDT

A proven track record of success gives Hannon Armstrong a leg up over its peers, according to Baird. The firm reiterated its outperform rating of Hannon Armstrong on Tuesday, naming it a bullish fresh pick. Baird did lower its price target on the stock to $28 from $44. However, the new forecast implies roughly 81% upside. Organized as a real estate investment trust, Hannon Armstrong specializes in providing financing for sustainable infrastructure projects in the form of debt and equity capital. Shares are down more than 46% year to date. The stock has fallen 18% in the past week alone due to exaggerated investors frustrations toward the renewables outlook, according to analyst Ben Kallo. Additionally, a competing investment firm's recent reduction of Hannon Armstrong's dividend growth outlook may have also contributed to the sell-off. HASI YTD mountain HASI YTD chart "This frustration and bearish sentiment for broader renewables sector growth outlook in the near term have compounded weakness and led to shares being oversold in our view," he wrote. "Despite the uncertain outlook from others in the space, we believe HASI is set up for a strong Q3 and see a clean quarter as a potential catalyst." Investors should be relieved by the fact that despite a higher interest rate for longer environment, none of Hannon Armstrong's debt is set to mature until 2025 and the company will not require any additional equity to reach current guidance of earnings and dividend growth, the analyst said. Additionally, the firm's REIT structure offers a unique, tax-advantaged opportunity for investors to enter the renewable energy and energy efficiency financing market. "We think the premium is justified due to HASI's portfolio diversity and stronger financial position than peers," he said. On Friday, BlackRock disclosed that it raised its stake in the REIT to 16.5% at the end of its third quarter, up from 7.12%, according to FactSet. Currently, shares of Hannon Armstrong are offering a dividend yield of 10.1%. — CNBC's Michael Bloom contributed to this report.