NextEra Energy is a Solid Play on Rising Energy Prices

One of the more intriguing early earnings reports will come from NextEra Energy (NYSE: NEE). NEE stock is up 10% in 2021 which is consistent with other large utility companies such as Duke Energy (NYSE: DUK) which is up 12%. And NextEra is outperforming the Utilities Select Sector SPDR Fund (NYSEARCA: XLU) that’s up 7% in 2021. 

As its name suggests, NextEra is the world’s largest investor-owned generator of wind and solar power.  However, the company is also one of the nation’s largest traditional utilities as well. In fact, NextEra owns Florida Power & Light Company the largest rate-regulated utility in the country. It also owns Gulf Power Company which services Florida. The company’s long-term plan is to combine its portfolio of natural gas, wind energy, and solar projects to drive revenue and earnings growth.  

This feeds into the bullish argument for NEE stock that the company shouldn’t be thought of strictly as a “boring” utility company. It was also the reason you can’t blame many investors for being disappointed in the stock’s performance.  

Heading into 2021, the renewable energy sector was supposed to be one of the can’t miss sectors. One specific reason was the expectation that removing tariffs on China imposed by the Trump administration would lower the cost of solar panels. The company was also supposed to benefit from the Biden administration’s infrastructure bill. But with the bill tied up in Congress, the funding has not arrived. 

Nevertheless, NEE stock looks to be at the start of a bullish pattern. But are there reasons for investors to be optimistic? There appear to be a couple of analysts. First, the company’s increase in revenue will reflect the improving economy in Florida as vaccines continue to roll out. On the company’s last earnings call, management cited Case-Shiller numbers that forecasts Florida’s population to grow 1% annually through 2023. This would result in the company’s business units adding approximately 500,000 new customer accounts from 2018 through 2025. 

The third quarter should also be the first quarter that NextEra realizes revenue from its SolarTogether program that rolled out in the second quarter. 

NextEra is Expected to Post Strong Earnings 

NextEra is expected to report earnings per share (EPS) of 72 cents. That would be a 7.5% year-over-year (YOY) improvement and make it five of the last six quarters that the company has beaten earnings estimates. Revenue is expected to come in at $5.73 billion. Not only would that be a nearly 20% (19.7%) YOY increase but it would snap a two-quarter streak of having revenue come in lower on a YOY basis. 

Occasionally analysts will issue a new rating in advance of earnings to tip off the direction of the stock. This hasn’t been the case for NEE stock, but the stock is rising slightly ahead of earnings which suggests that the stock may be ready to break higher. 

Some Good News, Some Bad News 

There are two items that may influence the stock. On the positive side, NextEra was just added to Fortune’s 2021 list of companies that “Change the World.” This list recognizes companies that have made a positive social impact “through activities that are part of their core business strategy.” It’s the second time, NextEra was added to the list.  

However, NextEra was also one of three renewable energy companies that was removed from the Global Clean Energy Index. The S&P 500 volunteered that NextEra was removed because its carbon-to-revenue footprint standard score has increased.  

Is NEE Stock a Buy After Earnings 

Right now, NEE stock is trading at a historically high price-to-earnings (P/E) ratio of 51.36. That’s nearly double the current P/E ratio of the Essential Utilities sector. And the stock is bumping against both its  52-week high and the consensus opinion of analysts. There is some concern that NextEra may have all the good news priced in. 

One deciding factor for investors may be the company’s dividend. NextEra is a dividend aristocrat having grown its dividend in each of the last 26 years.