NextEra Energy (NEE) is an energy company based in America and produces around 58 GW of electricity. 24 GW of this entire capacity comes from fossil fuels. With a workforce of approximately 14,900 employees as of 2020, the company is spread out across the USA and Canada.
Its revenue in 2021 stood at over $17 billion. According to market capitalization, it is the biggest electric utility holding company. The company’s subsidiaries are NextEra Energy Resources, NextEra Energy Services, Gulf Power Company, and NextEra Energy Partners. The company was founded in 1984, and in 2010, it changed its stock ticker symbol from FPL to NEE.
I am bullish on NextEra Energy as it enjoys strong growth momentum, a lengthy growth runway, reasonable valuation multiples relative to its history, and overwhelmingly bullish sentiment from Wall Street analysts alongside an average price target that implies substantial upside potential over the next year.
Strengths
With time, NextEra Energy has surpassed its industry peers to become one of the leading energy companies in the industry. It has strong research & development capabilities, which has allowed it to establish 85 state-of-the-art wind facilities, and it also has nuclear generation assets apart.
According to its latest quarterly report, the company also reported increasing its financial expectations for 2022 and 2023. For 2022, NEE is expecting adjusted EPS to range from $2.75 to $2.85. It also expects 6% to 8% in adjusted EPS growth per year from 2022 to 2025.
Recent Results
In the fourth quarter of 2021, NextEra Energy achieved an adjusted EPS of $2.55, with 10% year-over-year growth. The company reportedly deployed $16 billion in capital, and it expects to remain among the top capital investors in America. NEE also reported that it has managed to deliver a compound annual growth in EPS of approximately 9% over the last decade.
Valuation Metrics
NEE stock looks fairly valued here as it trades roughly in line with its three-year valuation multiple averages on a forward EV/EBITDA ratio and price-to-normalized-earnings basis. Its forward EV/EBITDA ratio is 16.44 times compared to its historical average of 16.4 times, and its forward price-to-normalized-earnings ratio is 27.1 times compared to its historical average of 28.9 times.
Meanwhile, analysts expect revenue to increase by 29.5% in 2022 and normalized earnings per share to increase by 9.4% in 2022.
Wall Street’s Take
According to Wall Street analysts, NEE earns a Strong Buy consensus rating based on 10 Buys, three Holds, and zero Sell ratings assigned in the past three months. Additionally, the average NextEra Energy price target of $93.54 puts the upside potential at 23.6%.
Summary and Conclusions
NEE stock is backed by strong growth momentum in the renewable energy industry and enjoys overwhelmingly bullish sentiment from Wall Street analysts, as well as an average price target that implies substantial upside potential over the next year.
Meanwhile, the stock price looks reasonable here as the valuation multiples are in-line with historical averages.
One risk that the company faces is that its debt burden is fairly high with a 7.4x net-debt-to-EBITDA ratio, so if its assets were to run into challenges, the company could suffer significant equity impairments and hurt shareholders accordingly. That said, as long as investors keep this risk in mind, it looks like it might be a decent time to add shares.
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