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Green energy stocks have been struggling through a topsy-turvy year of rising interest rates, supply chain challenges and the renewed allure of traditional energy marked by soaring fossil fuel prices. But Boralex Inc. BLX-T stands out with impressive gains that make it worth a closer look.

The Quebec-based company is one of the smaller players within Canada’s renewable energy space.

Its market capitalization – the value of its outstanding shares – is about $4-billion, smaller than heavyweights like Algonquin Power & Utilities Corp., Brookfield Renewable Energy Partners LP and Northland Power Inc.

The stock is becoming hard to ignore though: Boralex, which is largely a wind power producer in Canada, France and the United States, is outperforming.

Shares (BLX-T) are up 12.8 per cent this year, not including dividends. That easily beats the iShares Global Clean Energy ETF, an exchange-traded fund that provides broad global exposure to the renewable energy sector. Its units are down 7 per cent over the same period.

Boralex is also beating its Canadian peers this year by an average of more than 10 percentage points. Its performance leads in one-, two- and three-year periods as well.

Why is the stock leading the renewable energy sector?

First, let’s look at the sector. Renewable energy has an attractive long-term thesis: The world needs to reduce greenhouse gas emissions, and that means generating more energy from wind, solar and hydroelectric sources. That gives the sector an appealing long-term growth profile.

The near-term, though, has been plagued by concerns about stock valuations and supply chain bottlenecks.

Vestas Wind Systems A/S, the Danish wind turbine manufacturer, is a typical case. The stock touched a high in early 2021, like much of the renewables sector, amid rising optimism and political support for cleaner energy.

But the stock’s lofty valuation last year proved vulnerable to rising interest rates. In addition, Vestas has struggled with disrupted supply chains, which contributed to a first-quarter loss for the company even as sales rose 27 per cent, year-over-year.

The shares have tumbled more than 40 per cent from last year’s high point.

Boralex isn’t immune to this volatility by any stretch. The shares are down about 30 per cent from their highs in early 2021. Investors who bought at the peak are nursing deep wounds.

However, the stock’s impressive gains over most annual periods, as well as its peer-leading year-to-date rebound, suggest that something is going right.

Part of the company’s success springs from its big bet on Europe: It is the largest independent onshore wind producer in France. There, the transition to renewables has gained new urgency with surging prices for oil and natural gas.

The value of these European assets is becoming apparent. Last week, Boralex closed an agreement to sell a 30-per-cent stake in its French assets to Energy Infrastructure Partners, the Switzerland-based asset manager.

The reason analysts applauded the agreement, when it was announced in late February: The price, at €532-million ($720.2-million), implies a valuation of 16 times estimated 2022 EBITDA (or earnings before interest, taxes, depreciation and amortization), according to CIBC World Markets.

That’s at the upper end of expectations and well above the valuation of Boralex shares prior to the announcement, which suggests that the company’s assets are more valuable than the market is reflecting. Since the announcement, the shares have risen nearly 20 per cent.

What’s more, analysts expect that proceeds from the deal can help fund the company’s impressive growth profile, either through acquisitions or internal development.

Already its pipeline of projects in various stages of development comes to 3.2 gigawatts, according to Credit Suisse, more than the current asset capacity of 2.5 GW and highlighting the continuing potential here.

To be sure, its Canadian renewable power producing peers, including Brookfield and Northland, aren’t exactly sitting still. They have ambitious development pipelines of their own, underscoring a sector-wide bullish case for investors who can stomach shifting political winds and unsteady valuations.

But Boralex is emerging as the stock to watch.

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