The increasing potential of green energy, including hydrogen, renewable fuels, carbon sequestration, and wind and solar power, has captured the attention of Wall Street. With a rising 2.7% dividend yield, NextEra Energy presents a reasonably low-risk investment opportunity in green technology.
NextEra, the largest electric utility in the US, has two businesses: Florida generating & Light, one of the biggest and best-run utilities in the nation, and the nation’s largest portfolio of wind and solar generating assets. Its market value is $138 billion.
In the previous ten years, NextEra’s shares have outpaced the S&P 500 index, which is unusual for utilities. However, the stock, which reached its all-time high in late 2021 at $93 a share, has lagged behind more recently, down 18% this year to a recent $68.
When compared to peers like Southern Co. (SO) and Duke Energy (DUK), NextEra trades at a premium; however, this difference has closed as the stock’s forward price/earnings multiple has declined from a high of approximately 30. Currently, shares sell for 22 times anticipated earnings of $3.12 per share for 2023 and 20 times anticipated earnings of $3.40 per share for 2019.
The business anticipates 6% to 8% yearly earnings growth in 2025 and ’26 and stated in its slide deck for second-quarter earnings last month that it would be “disappointed if We are unable to meet or exceed our adjusted EPS [earnings per share] expectation ranges through 2026 in terms of financial performance. That implies earnings of around $4 per share in 2026.
John Bartlett, president of Reaves Asset Management, which manages the Reaves Utility Income closed-end fund (UTG), claims that NextEra owns one of the utilities with the greatest rate of growth in the nation and has some of the most beneficial regulation. According to Bartlett, the Inflation Reduction Act’s plethora of subsidies and incentives for renewable energy is yet another benefit for the business.
The “best-in-class, high-growth utility,” “dominant” renewables development in the United States, and one of the strongest balance sheets in the industry are all attributes of NextEra, according to Wolfe Research analyst Steve Fleishman. A sum-of-the-parts approach was used to determine his rating of the company as Outperform and his $89 price objective.
Compared to Duke Energy’s and Southern’s dividends, which yield roughly 4%, NextEra’s payout is modest. 3.5% is the standard for the sector. However, since 2007, the payment has increased by an industry-beating 10% annually, and the company anticipates continuing that trend through at least 2024.
Florida Power & Light, a NextEra company, serves 5.8 million people. Florida’s population growth prospects are promising. The utility is making significant investments to decarbonize its generating fleet and develop supporting infrastructure. About $9 billion in capital expenses are anticipated for this year.
With natural gas making up 71% of FP&L’s generation capacity right now, one of its major goals is to install solar power. By combining battery storage with solar, it hopes to achieve carbon-free electricity generation by 2045.
With around 27 gigawatts of sustainable energy generating capacity, NextEra surpasses Berkshire Hathaway (BRK.A, BRK.B), which is rated No. 2, thanks to early investments in wind and solar energy under previous CEO Jim Robo. A component of the renewables company is located in NextEra Energy Partners (NEP), which NextEra owns more than 50% of, while the remainder is held in NextEra Energy Resources, an unregulated subsidiary.
