Categories Analysis, Energy

After a challenging year, will NextEra Energy regain strength in 2024?

High interest costs will likely weigh on upcoming earnings, but the Fed’s softening stance signals a rebound in the near future

NextEra Energy Inc. (NYSE: NEE) is a market-leading energy utility firm with a good track record of successfully navigating challenges. However, the business has come under pressure from higher interest rates lately, requiring it to raise or refinance capital. While the company’s stock often underperformed the market in 2023, it has returned to the growth path and looks poised to create shareholder value this year.

Shares of the Juno Beach-headquartered company have gained about 25% in the past three months, after recovering from a 3-year low. The continued investor confidence indicates that the uptrend will likely extend into the coming months. Regular dividend hikes and the above-average yield make the stock an attractive bet for income investors. The management sees a 10% growth in dividends per share through at least 2024, off a 2022 base.

What Future Holds

NextEra is on an expansion drive, armed with its healthy balance sheet and strong cash flows. Also, it has a relatively low debt. The improving interest rate scenario bodes well for the company in terms of meeting its growth goals, while also lifting investor confidence.       

The market for NextEra’s utility subsidiary FPL is growing steadily, with the favorable regulatory environment adding to its prospects. The company plans to add about 20 gigawatts of solar capacity over the next decade while staying focused on reducing costs for the distribution system. At the same time, the Energy Resources segment is expanding and continues to be a market leader in renewable energy. The business added around 3,245 megawatts of new renewables and storage projects to its backlog in the most recent quarter.

Muted Outlook

NextEra delivered better-than-expected earnings regularly every quarter since early 2020, a trend that is likely to continue in the coming quarters. NextEra is scheduled to publish fourth-quarter results on January 24, 2024, before the market opens, amid expectations for a slowdown from the prior-year-period. Market watchers are looking for earnings of $0.50 per share for Q4, vs. $0.51 per share in the prior-year quarter. The consensus revenue estimate is $5.72 billion, which represents a 7% year-over-year decrease.  

“Going forward, we are encouraged by the trends we are seeing in lower equipment pricing for solar panels and batteries, given increased competition globally and declining prices for materials, which we believe will help offset the impacts of higher interest rates on power purchase agreement prices. We are optimistic that demand will remain resilient due to the factors you all know well, including the continued cost competitiveness of renewable energy relative to alternative forms of generation,” said NextEra’s CFO Kirk Crews at the last earnings call.

Earnings Beat

In the three months ended September 2023, NextEra reported adjusted earnings of $0.43 per share, compared to $0.37 per share last year. The latest number topped expectations. Unadjusted profit, meanwhile, decreased to $1.22 million or $0.60 per share from $1.70 million or $0.86 per share in Q3 2022. For fiscal 2023 and 2024, the management projects adjusted earnings per share of $2.98-$3.13 and $3.23-$3.43, respectively. In 2025 and 2026, adjusted net income per share is expected to grow 6-8% from the 2024 levels.

NextEra’s stock traded slightly above $62 on Monday afternoon, after opening higher. It is below the twelve-month average.

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