NextEra Energy (NYSE: NEE) is a Florida-based company that is the world's 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 won't 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.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
