Is NextEra Energy Stock a Good Buy at Current Prices?
June 27 2022 - 5:28AM
Finscreener.org
NextEra Energy (NYSE:
NEE) is a Florida-based
company that is the worldU+02019s largest renewable energy company.
It generates electricity through numerous sources such as wind,
solar, nuclear, coal, and natural gas facilities and also develops,
constructs, and operates long-term contracted assets consisting of
clean energy solutions like renewable generation facilities, and
battery storage projects.
At the end of 2021, the company
boasted 28,564 megawatts of net generating capacity along with
having 77,000 circuit miles of transmission and distribution lines
and 696 substations.
Even though renewable energy is
one of the most important needs of the day, NextEra Energy stock
has lost close to 23% this year so far. However, in this high
inflationary market, this stock is still better compared to most
other growth stocks which have tanked miserably.
A primary reason for its outsized
gains compared to growth stocks is that demand is predictable in
the utility sector, and stocks like NextEra are able to provide
stable returns in every kind of market condition.
Besides, the NextEra stock has
all the potential to generate market-smashing returns in the coming
years because of the investments it has made towards the
elimination of carbon emissions from its business by
2045.
NextEra has immense prospects
Firstly, the near-term prospects
in the utility industry are huge. As per a
report by Research and Markets, the global utility
market might reach $6 trillion by 2025 growing at a CAGR of 7% in
the next four years. NextEra, one of the most prominent companies
in this segment, will be able to benefit greatly from this
expanding opportunity.
Secondly, the company has decided
to expand beyond the power segment by investing significantly in
areas of wind, solar, and storage business. It intends to grow its
already large-scale transmission business in a manner
supporting the
decarbonization move of
the US economy. As per its Real Zero plan, it will be removing all
the carbon emissions in its business at least by 2025.
NextEra has been adding more
renewable energy to its power grid and is currently pursuing more
than $40 billion of transmission projects to help in the
decarbonization process. It will also deploy between $85 billion to
$95 billion between 2022 to 2025 for this purpose.
Finally, building a leading
regulated water business is also on the cards as NextEra intends to
have a dozen $100 million businesses by 2025 up from the seven it
already possesses. Keeping in line with its ambitions,
it
acquired a wastewater system in Pennsylvania a few days
back.
A look at NextEra’s improved financials
NextEra has continued to grow
since 1925 with the growth in the renewable energy market and that
of Florida’s population. Despite the rising inflation levels, the
company’s financials for Q1 of 2021 has been relatively
stronger.
NextEra reported a loss of $451
million translating to a loss per share of $0.23 during the
quarter. However, the loss was much lower compared to the loss of
$1,666 million or $0.84 per share it had reported in the same
period a year ago.
Besides, NextEra has improved its
adjusted earnings forecast and expects to improve its bottom line
at an annual rate of 9.8% between 2021 and 2025. Notably, this
growth rate is much higher than the 8.4% compound annual growth it
has delivered since 2006.
The best part about NextEra is it
has been consistent in raising its dividend payouts for the past 28
years. Last
February it increased its payouts by 10% and will provide
at least a 10% hike every year till 2024. The said target seems
achievable as being in the utility business the company wonU+02019t
have to face any dearth of cash flows.
The stock closed on June 24 at
$78. The average analyst target price for the stock is $90.83 which
is a potential upside of over 15%. In today’s world when more
people are stressing the importance of renewable energy sources,
NextEra’s drive towards decarbonization is going to provide it with
a lot of push towards growth.
Moreover, in an inflationary
environment buying stocks that provide a passive income in the form
of dividends is something that makes NextEra even more
attractive.
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