NextEra Energy (NEE) is an American company operating in the energy production industry. I am neutral on NextEra Energy as its strong growth potential, support from Wall Street analysts, and impressive track record are offset by its rich valuation and low dividend yield.
Strengths
NextEra Energy has a generating capacity of about 58GW, of which 24GW comes from fossil fuel sources. The company has employees throughout the USA and Canada and is currently the largest electric utility holding company by market capitalization.
It has a number of subsidiaries in different sectors, though they all operate in the same industry. NextEra owns and operates generating plants for wind, solar, natural gas, nuclear energy, and oil.
About 41% of its total generating capacity comes from non-renewable energy sources.
Recent Results
For the third quarter of 2021, NextEra announced a reported total net income of $447 million across the company.
For its FPL subsidiary, net income stood at $836 million, showing an approximate 10% increase since the previous year, at $757 million. Earnings per share stood at $0.42.
Gulf Power reported a net income of $91 million at $0.05 per share, showing insignificant growth since last year. Capital expenditures for the quarter were approximately $200 million for Gulf Power, and these are progressing well, with the company expecting 150MW of increased solar capacity within the next six months.
NextEra Energy Resources reported a net loss of $428 million, at $0.22 per share compared to the $376 million or $0.19 per share profit during the same period last year. This subsidiary added 1,240 MW of new wind projects, 515 MW, and 345 MW of new storage projects to its backlog.
In the long term, the financial expectations for the company remain unchanged. NextEra Energy expects to grow 6-8% during 2022 and 2023, taking earnings per share to approximately $2.55 to $2.75 and $2.77 to $2.97, respectively.
Valuation Metrics
NEE stock looks richly priced at the moment as its forward enterprise-value-to-EBITDA ratio is 18.4x compared to its five-year average of 14.2x. Its forward price-to-normalized-earnings ratio is 34.4x compared to its five-year average of 25.6x, and its dividend yield is 1.83% compared to its five-year average of 2.48%.
Wall Street’s Take
Turning to Wall Street, NextEra earns a Moderate Buy consensus rating, based on four Buys and two Holds assigned in the past three months. Additionally, the average NextEra Energy price target of $95.50 puts the upside potential at 4.8%.
Summary and Conclusion
NextEra Energy is a leading player in the renewable energy space and has a strong track record of making prudent investments that have generated considerable growth and total returns for shareholders.
Looking ahead, the company should continue to grow at a strong pace, with EBITDA expected to increase by over 20% in each of the next two years, normalized earnings per share expected to grow by high single digits, and the dividend per share expected to increase by about 10% per year. Additionally, Wall Street analysts are generally bullish on the stock here.
On the other hand, the dividend yield is relatively low on an absolute and historical basis. Its valuation multiples appear stretched, and the consensus price target implies weak upside potential over the next year. As a result, investors might want to wait for a pullback in the stock price.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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