While most of NextEra’s renewable generation capacity runs on wind energy, much of the current 20 gigawatts of accumulated capacity is in solar energy storage and energy storage. Above, the company’s Sunshine Gateway Solar Center in Welburn, Florida.
Kurt Rivers/NextEra Energy
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Wall Street was fascinated by the growth potential of green energy, from wind and solar power to hydrogen, renewable fuels and carbon sequestration.
NextEra Energy
It offers a relatively low-risk green game, with a high dividend yield of 2.7%.
The largest electric utility in the United States, with a market capitalization of $138 billion, NextEra (stock ticker: NEE) owns two companies: it owns the leading portfolio of wind and solar assets in the United States, and one of the largest and best-run utilities, Florida Power & Light.
NextEra shares outperformed
Standard & Poor’s 500
index in the past ten years, which is rare among utilities. But the stock, which peaked in late 2021 at $93 a share, has lagged lately, down 18% this year, to $68 recently.
NextEra trades at a premium over peers such as
Southern Company
(SO) and
Duke Energy
(DUK), but that gap has narrowed as the forward price/earnings per share has fallen from a high of around 30. The shares now bring in 22 times projected 2023 earnings of $3.12 per share and 20 times next year’s estimated income of $3.40 per share.
The company sees annual earnings growth of 6% to 8% in 2025-26, and said last month in a second-quarter earnings slideshow that it “would be disappointed if we weren’t able to deliver financial results at or near the top of the adjusted EPS forecast range ( earnings per share) through 2026.” That means roughly $4 a share in earnings in 2026. Most of the peers are aiming for earnings growth close to 6% annually. NextEra’s 2024 earnings are expected to increase by 9%.
says John Bartlett, president of Reaves Asset Management, which manages
Reeves benefit income
closed box (UTG). Bartlett says the Anti-Inflation Act and its suite of subsidies and incentives for renewable energy is another positive for the company.
| company / bar | Last price | Change since the beginning of the year | market value (car) | 2023E EPS | 2024E EPS | 2023E bis | 2024E bis | profit return |
|---|---|---|---|---|---|---|---|---|
| NextEra Energy / Ni | $68.29 | -18.3% | $138 | $3.12 | $3.40 | 21.9 | 20.1 | 2.7% |
| Duke Energy / All | 92.91 | -9.8 | 72 | 5.62 | 5.97 | 16.5 | 15.6 | 4.4 |
| Southern Company / SO | 69.41 | -2.8 | 76 | 3.60 | 4.02 | 19.3 | 17.3 | 4.0 |
E = estimates
Source: Bloomberg
Wolfe Research analyst Steve Fleischmann recently wrote that NextEra has a “best-in-class, high-growth facility,” “dominant” renewable energy development in the United States, and one of the strongest balance sheets in the sector. It outperforms the stock and has a price target of $89, based on a sum of the parts analysis.
NextEra’s earnings are down relative to Duke Energy and Southern, which yield about 4%. The industry average is 3.5%. But payments have risen 10% annually, outperforming the industry since 2007, and the company sees at least 10% annual growth through 2024.
NextEra’s Florida Power & Light has 5.8 million customers. Florida’s favorable population outlook bodes well for growth. The utility spends heavily on decarbonizing the generation fleet and building related infrastructure. Capital expenditures are expected to be around $9 billion this year.
One of FP&L’s big initiatives is the deployment of solar power to replace natural gas, which now accounts for 71% of its generation capacity. It aims to have carbon-neutral generation by 2045, in part by pairing battery storage with solar power.
Under the leadership of former CEO Jim Robow, NextEra was early in the development of wind and solar power and now has about 27 gigawatts of clean power generation capacity, ahead of second place.
Berkshire Hathaway
(BRK.A, BRK.B). The renewable energy business is located in an unorganized unit, NextEra Energy Resources, of which it is part
NextEra Energy Partners
(NEP), more than 50% owned by NextEra.
Most of the company’s renewable generation capacity is wind-powered, but much of the current 20-gigawatt backlog is in solar and energy storage.
Robo has never been prepared to develop offshore wind power on the East Coast, citing lengthy development schedules and uncertain permits, among other drawbacks. It’s “terrible energy policy” and costly, he said in 2018, comments that seem smart given the declining economics of offshore wind. NextEra sees its advantage in renewables as stemming from its 20 years of experience, advantage in the ground, better supplier relationships, and strong balance sheet.
NextEra stock fell as interest rates rose, dampening investor interest in utilities. The sector’s dividend yields look less attractive compared to cash than they did a year ago. In renewable energy, there are concerns about rising costs and regulatory barriers, and growing domestic opposition in many parts of the country that has slowed deployment in the past year.
In addition, Florida Power & Light has been the subject of news articles whose executives funneled money to Florida politicians to protect its interests. The former FP&L CEO retired in January, and NextEra has launched two investigations into the matter. NextEra CEO John Ketchum said on the January earnings call that there was no connection between the CEO’s departure and the company’s investigation. NextEra declined to comment for this story.
Pricing and regulatory risk are largely reflected in NextEra’s valuation. At its current low price, the stock offers an attractive play for two industry leaders under one corporate roof, both of which have significant growth potential.
write to Andrew Barry at andrew.bary@barrons.com
