NextEra Energy Offers a Long-Term Gain if You Can Tolerate Short-Term Pain

The clean energy company is swimming against the stream for now 

NextEra Energy (NYSE: NEE) is one of the leading clean energy companies in the United States. And that served the company very well for most of the last two years. From the onset of the pandemic through 2021, NEE stock climbed by 94%. But 2022 has been a different story. The stock is down 14.8% and the company’s earnings report isn’t helping change that trajectory. The long-term story of renewable energy is still in the early innings. Nevertheless, the short-term outlook may be choppy. 

First, it’s important to note that the earnings results weren’t awful. But with investors on edge, anything short of stellar is going to be punished. The company delivered non-GAAP earnings per share (EPS) of $0.74. This beat estimates by over 10% and it was a year-over-year (YOY) increase of 10.4%. NextEra also affirmed its previous guidance for full-year EPS to be in a range of $2.75 to $2.85. The consensus estimate is for EPS of $2.81. Furthermore, the company is guiding for 6% to 8% EPS growth from 2023 through 2025. 

But revenue was a different story. The company came in at $2.89 billion which was 22.5% lower than the same quarter in the prior year. And with investors anxious to find any reason to sell, a more than 20% YOY decline in revenue would be all it takes. 

An Uncertain Macroeconomic Picture 

The Russian invasion of Ukraine is emphasizing the importance of energy independence. What’s less clear is how the United States arrives at that level of independence. Certainly, the long-term outlook suggests that clean energy will be a significant part of that.  

The European economy is very dependent on Russian oil and gas. And there is some talk that renewable energy is the fastest path towards energy independence. To support that narrative, renewable energy stocks, such as NEE, surged immediately after the invasion.  

But that surge has leveled off. And if the mid-term elections go the way the current forecast appears they will, energy policy in the United States could tilt towards fossil fuels in the short term.  

And in remarks the company said that as much as 2.8 gigawatts of the company’s solar and storage projects may be delayed as the United States revisits its existing tariff policies with Chinese solar panel suppliers. This serves to highlight the fact that the United States solar industry is heavily reliant on solar panels being imported from Asia.  

On the company’s earnings call, Kirk Crews, NextEra’s chief financial officer remarked, “If the Commerce Department were to find circumvention, we believe it would be unwinding a decade of trade practice...We are disappointed with the Commerce decision to conduct this investigation.” 

NEE Stock Belongs on the Watchlist 

I’ll end this the way I started it. NextEra Energy looks to be a strong long-term performer. And the analysts tracked by MarketBeat give NEE stock a price target of $90.43 which is a 16% increase from the current price. And NextEra Energy pays a dividend that currently has a yield of 2.19% which is slightly higher than the average of the S&P 500. And it’s increased its payout every year for the last 28 years which makes it part of the Dividend Aristocrat club.  

For investors that give credence to the Relative Strength Indicator (RSI), NEE stock is showing signs of being oversold on a technical basis. Still, in the short term, NextEra Energy stock may not be ready to deliver the growth that some investors will want. But investors with a long-term outlook may view this as an opportunity to grab some shares and hold on for the long haul.