Shares of NextEra Energy NEE have gained 21.3% in a year compared with its Zacks Utility - Electric Power industry’s rally of 14.4%. The company has also outperformed the Zacks Utilities sector in the same time frame.
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The steady rise in NextEra Energy’s share prices is a reflection of the strong performance of the company and customer growth, which is boosting demand for its services. The decline in interest rates is also going to boost prospects of this capital intensive company.
NEE Stock Outperforms Industry & Sector in Past Year
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Should you consider adding NEE stock to your portfolio only based on positive price movements? Let’s delve deeper and find out factors that can help investors decide whether it is a good entry point to add NEE stock to their portfolio.
Factors Contributing to NEE Stock’s Strong Performance
NextEra Energy is a capital-intensive company and has been managing debt effectively with top-tier credit ratings, ranging from A to Baa1, from all major rating agencies. Debt to capital of the company is 58.16%, lower than its industry average of 60.64%. The drop in the interest rates by 100 basis points will definitely lower NEE’s long-term capital servicing expenses and boost its margins. The times interest earned ratio of the company at the end of the third quarter was 2.2, which indicates that it has enough financial strength to meet its near-term debt obligations.
The U.S. Energy Information Administration, in a release, predicted that the electricity consumption in the United States will increase by 2.2% from 2024 levels to 11.41 billion kilowatt hours per day in 2025. NextEra Energy, with its expanding renewable assets, is well-positioned to capitalize on the expected power demand growth in the United States. The development of large data centers and rising demand from industrial and commercial space will continue to boost electricity demand.
NEE’s unit NextEra Energy Resources further expanded its contracted renewables backlog by adding nearly 3 gigawatts (GW) of renewable projects in the third quarter. The company’s renewables backlog was nearly 24 GW at the end of the third quarter. As we approach the end of the fourth quarter of 2024, it goes without saying that this unit will further add to its renewable backlog, boosting the prospects of the company.
The improving Florida economy is boosting the prospects of the company by creating opportunities for fresh demand. The demand for clean electricity is rising, and NextEra Energy can meet it through strategic investments to strengthen and upgrade its infrastructure. NextEra’s unit, Florida Power & Light Company (“FPL”), has plans to invest $38 billion in the 2024-2028 time period. FPL's focus is on clean, efficient, modernized generation and a stronger and smarter grid.
NextEra Energy’s Earnings Estimates Moving North
NextEra Energy reiterated its 2024 earnings per share in the range of $3.23-$3.43 compared with $3.17 a year ago. The Zacks Consensus Estimate for NEE’s 2024 and 2025 earnings per share indicates year-over-year growth of 7.57% and 7.66%, respectively. The company expects to increase its earnings per share in the range of 6-8% annually through 2027 from the 2024 level.
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NEE Stock Returns Better Than Its Industry
NextEra Energy’s trailing 12-month return on equity (ROE) is 11.94%, ahead of the industry average of 10.83%. ROE is a financial ratio that measures how well a company uses its shareholders’ equity to generate profits. The current ROE of the company indicates that it is using shareholders’ funds more efficiently than its peers.
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NextEra Energy Raises Shareholders’ Value
NextEra Energy plans to increase the dividend rate annually by 10%, at least through 2026, from the 2024 base, subject to its board’s approval. The current annual dividend of the company is $2.06 per share, and the dividend yield of 2.85% is better than the Zacks S&P 500 Composite’s yield of 1.51%. Check NEE’s dividend history here.
Another utility, The Southern Company’s SO current annual dividend is $2.88 per share, reflecting a dividend yield of 3.46%.
NextEra’s Shares Trading at a Premium
The company is currently valued at a premium compared to its industry on a forward 12-month P/E basis.
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Rounding Up
NextEra Energy continues with stable performance, backed by rising demand for clean energy in its service territories. The reliability of its services and electricity bills lower than the national average creates a competitive advantage for the company.
Those who already own this Zacks Rank #3 (Hold) stock would do well to retain it in their portfolio and enjoy the benefits of dividends and rising earnings estimates and benefit from NEE’s wide presence in the United States. The stock is currently trading at a premium, so investors should wait a little longer for a better entry point to add this utility to their portfolio.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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