Key Points
- High upside of more than 36%
- New price target beats 52-week range
- Consistent earnings beats
- Energy stocks are competitive
NextEra Energy (NYSE: NEE) is a clean energy company with principal subsidiaries like Florida Power & Light Company—serving at least 10 million accounts in Florida—and NextEra Energy Resources, LLC. When considering their affiliated entities, NextEra Energy is the largest generator of renewable [wind and solar] energy in the world.
This week, the Board of Directors of NextEra Energy announced a common stock dividend of $0.425 per share, this quarter. They also revealed they will release their fiscal third-quarter 2022 financial results at the end of the week.
Currently, NextEra Energy has received a 12-month analyst price forecast median target of $96.00, which is in the lower half of the $85 to $115 estimated range. Still, the stock has an upside that has been steadily increasing across the last three months, from 13.14% to 36.13%. This is quite a big jump from 18.04% (to 36.13% ) this month, despite little change to the consensus price target: which has a margin of only $0.30 cents. Furthermore, the updated price target easily bests the stock's 52-week range of $67.22 to $93.73.
Analysts have given NEE a MODERATE BUY rating.
Solid Earnings Establish Steady Growth
Speaking of price targets, the current quarterly earnings per share (EPS) target for NEE is $0.79, on $6.0B in sales. Their next reporting date is Oct 28. A closer look at quarterly earnings per share might shed some light as to why the stock has been performing so well.
For example, quarterly earnings have consistently beaten the consensus estimate for the past four consecutive quarters (at least). As a matter of fact, reported earnings met the top of the range in Q3 of 2021 (at $0.75) but fully beat the range in Q2 of 2022 (coming in a single cent over the $0.80 range limit). But while Q4 2021 and Q1 2022 did not see as much dramatic growth, their earnings beats were only within 10 cents and 4 cents of the range limit, respectively.
On an annual basis, growth appears a bit more steady. In 2018, reported earnings of $1.93 met the consensus estimate, just 3 cents shy of the top of the range. While annual earnings for 2019 fell a penny short of the $2.10 consensus estimate, NEE earnings bounced back in 2020, beating the $2.30 consensus estimate by the same margin. By 2021, though, $2.55 reported earnings beat the estimate, again; this time by 2 cents.
Energy Stocks are Competitive Right Now
In terms of large-cap utility companies, The Southern Company (NYSE: SO) and Dominion Energy, Inc (NYSE: D) are probably NextEra's closest peers/competitors. Comparing their stats, it might appear that both Dominion and Southern are performing better, but all three are somewhat similar, and NextEra may be in the best position in the coming months.
For example, of the three, NextEra has the lowest Return on Equity at only 11.97%. Dominion has the highest at 12.95%. Dominion also has the largest net margin—at 15.09%—but Southern as the lowest. NextEra is actually near the median of the two, with a net margin of 14.75%.
Dominion and Southern also have superior dividend yields, at 4.2% and 4.3%, with annual dividend payouts of $2.67 and $2.74, respectively. NextEra's dividend yield is still good, but at 2.33% with an annual dividend of $1.70, it is nowhere near its competitors. That said, Dominion is paying out 100% of earnings as a dividend, meaning their earnings cannot keep up with dividends; and NextEra is, unfortunately, paying out at a rate of 129.8%. Southern is actually not much better than either with a rating of 95.8%.
NextEra Has Strong Earnings But Is It Overvalued?
In terms of earnings, NextEra sits in the middle, again, with gross revenue of $17.07B (with a margin of about 4.5B on either side). Unfortunately, NEE has an extremely high Price/Sale ratio of 8.26, more than double that of Dominion, despite the fact that NextEra's EPS is half that of Dominion. Still, NextEra's net income of $3.57B is higher than the other two, but its P/E of 56.22 suggests it is overvalued by twice as much as the others.
Basically, NextEra Energy has lower revenue, but higher earnings and Southern is trading at a lower P/E, making it the more affordable of the two. However, NEE is, technically, more affordable than Dominion.
Perhaps the most important factor, when competitors are this close, is their beta value. Unfortunately, the beta range for these three stocks is also very close. The Southern Company has a beta of 0.55, which makes it 45% less volatile than the S&P, making it the best of the three. NextEra has a beta of 0.5 while Dominion has a beta of 0.48.
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