Concerns regarding NextEra Energy’s (NYSE:NEE) funding strategy have negatively impacted the stock this year, resulting in the shares falling by 13% in 2023.
However, now might be an opportunity to pick up shares on the cheap, according to DBS. The Singapore banking giant’s 5-star analyst, Pei Hwa Ho, lays out 3 reasons to back the U.S.’s largest utility and renewable energy company.
First off, there’s the combination of a “steady” utility business plus exciting renewable growth, with the company boasting a “unique proposition and wide economic moat.” The regulated utility business is experiencing gradual yet consistent expansion due to the ongoing influx of people moving to Florida, leading to an increased demand for utilities. At the same time, the company’s renewable energy segment has significant potential for growth. It plays a crucial part in achieving the company’s ambitious Real Zero objective, announced in June 2022, which aims to completely eliminate carbon emissions from its operations by 2045 at the latest. Furthermore, there are plans to convert 16GW of current natural gas units to operate on green hydrogen.
Secondly, with the energy transition underway in the U.S., the company is “strongly positioned” to take advantage. NextEra intends to double its solar and wind business from 24 gigawatts (GW) capacity in 2021 to 46-53GW capacity in 2025. At the same time, during the same period, it is eyeing expansion of its battery storage capacity to 6-8GW, a 6-8 folds increase.
Lastly, Ho points to the company’s “strong execution” as a reason to believe its ambitious growth targets amidst “slowing economic activity” are achievable. Over the past 10 years, the company has demonstrated an “excellent track record to weather through cycles,” generating a 10% adjusted EPS CAGR (compound annual growth rate), some distance above top 10 US power firms’ 3% CAGR. “Besides accelerated growth from renewables,” Ho adds, “it also has best-in-class operation and maintenance (O&M), achieving continuous cost savings through technology innovation and digitalisation that allows NEE to offer low-cost clean energy.”
Based on the reasons above, the DBS analyst rates NEE shares as a Buy, backed by a $93 price target. The implication for investors? Upside of 27% from current levels.
Looking at the ratings breakdown, with a total of 7 Buys and 3 Holds, the analyst consensus rates this stock a Moderate Buy. Over the next year, shares are expected to appreciate by 20%, considering the average target clocks in at $87.89. (See NEE stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
