While most of NextEra’s renewable generating capacity is in wind, much of its current backlog of 20 gigawatts is in solar and energy storage. Above, the company’s Sunshine Gateway Solar Energy Center in Wellborn, Fla.
Kurt Rivers/NextEra Energy
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Wall Street has been captivated by the growth potential of green energy, from wind and solar power to hydrogen, renewable fuels, and carbon sequestration.
NextEra Energy
offers a relatively low-risk green play, with a 2.7% dividend yield that’s rising.
The largest U.S. electric utility, with a market value of $138 billion, NextEra (ticker: NEE) has two businesses: It owns the leading portfolio of wind- and solar-power assets in the U.S., and one of the country’s biggest, best-run utilities, Florida Power & Light.
NextEra’s shares have outperformed the
S&P 500
index in the past 10 years, a rarity among utilities. But the stock, which peaked in late 2021 at $93 a share, has lagged behind more recently, falling 18% this year, to a recent $68.
NextEra trades at a premium to peers such as
Southern Co.
(SO) and
Duke Energy
(DUK), but that gap has contracted as the stock’s forward price/earnings multiple has fallen from a high around 30. Shares now fetch 22 times projected 2023 earnings of $3.12 a share and 20 times next year’s estimated income of $3.40 a share.
The company sees 6% to 8% annual earnings growth in 2025 and ’26, and said last month in its second-quarter earnings slide deck that it would be “disappointed if we are not able to deliver financial results at or near the top of our adjusted EPS (earnings per share) expectations ranges through 2026.” That implies roughly $4 a share in earnings in 2026. Most peers are aiming for earnings growth of closer to 6% annually. NextEra’s 2024 earnings are expected to rise 9%.
“(NextEra) owns one of the fastest-growing utilities in the country and has some of the most constructive regulation,” says John Bartlett, president of Reaves Asset Management, which runs the
Reaves Utility Income
closed-end fund (UTG). Bartlett says the Inflation Reduction Act and its raft of subsidies and incentives for renewable energy is another positive for the company.
| Company / Ticker | Recent Price | YTD Change | Market Value (bil) | 2023E EPS | 2024E EPS | 2023E P/E | 2024E P/E | Dividend Yield |
|---|---|---|---|---|---|---|---|---|
| NextEra Energy / NEE | $68.29 | -18.3% | $138 | $3.12 | $3.40 | 21.9 | 20.1 | 2.7% |
| Duke Energy / DUK | 92.91 | -9.8 | 72 | 5.62 | 5.97 | 16.5 | 15.6 | 4.4 |
| Southern Co. / SO | 69.41 | -2.8 | 76 | 3.60 | 4.02 | 19.3 | 17.3 | 4.0 |
E=estimate
Source: Bloomberg
Wolfe Research analyst Steve Fleishman recently wrote that NextEra has the “best-in-class, high-growth utility,” the “dominant” renewables development in the U.S., and one of the strongest balance sheets in the sector. He rates the stock Outperform and has an $89 price target, based on a sum-of-the-parts analysis.
NextEra’s dividend is low relative to Duke Energy and Southern, which yield about 4%. The industry average is 3.5%. But the payout has risen by an industry-beating 10% annually since 2007, and the company sees 10% yearly growth at least through 2024.
NextEra’s Florida Power & Light has 5.8 million customers. Florida’s favorable population outlook bodes well for growth. The utility is spending heavily to decarbonize its generating fleet and build related infrastructure. Capital expenditures are projected to be about $9 billion this year.
One of FP&L’s big initiatives is to deploy solar to replace natural gas, which now accounts for 71% of its generation capacity. It aims to have carbon-free generation by 2045, in part by pairing battery storage with solar.
Under former CEO Jim Robo, NextEra was early in developing wind and solar energy and now has about 27 gigawatts of clean-energy generating capacity, ahead of No. 2–ranked
Berkshire Hathaway
(BRK.A, BRK.B). The renewables business is housed in an unregulated unit, NextEra Energy Resources, and a portion sits in
NextEra Energy Partners
(NEP), more than 50% owned by NextEra.
Most of the company’s renewable generating capacity is in wind, but much of its current backlog of 20 gigawatts is in solar and energy storage.
Robo never warmed to developing offshore wind power on the East Coast, citing lengthy development timelines and uncertain permitting, among other drawbacks. It is “terrible energy policy” and expensive, he said in 2018, comments that look smart given the deteriorating economics of offshore wind. NextEra sees its advantage in renewables stemming from its 20 years of experience, a superior land position, better supplier relationships, and a strong balance sheet.
NextEra’s stock has fallen as interest rates have risen, dimming investors’ interest in utilities. The sector’s dividend yields look less attractive relative to cash than they did a year ago. In renewable power, there are fears about rising costs and regulatory barriers, and growing local 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 that its executives funneled money to Florida politicians to protect its interests. The former CEO of FP&L 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 executive’s departure and the company’s probes. NextEra declined to comment for this story.
Rate and regulatory risks are largely reflected in NextEra’s valuation. At its current, depressed price, the stock offers an attractive play on two industry-leading companies under one corporate roof, both with significant growth potential.
Write to Andrew Bary at andrew.bary@barrons.com
