NextEra Energy (NEE), the biggest utility company in the world, has done well in 2024. It has risen by over 22% this year and by 61% from its lowest point in 2023.
This recovery happened after it slumped to $46.06 in 2023 as investors dumped renewable energy companies. It also rallied after the company published strong financial results, which have demonstrated its resilience in a high-interest rate environment.
NextEra Energy, like other energy-focused utility companies, has benefited from the ongoing artificial intelligence (AI) trend. These firms are seeing more energy demand from companies running data. In a recent note, analysts at Goldman Sachs estimated that AI would lead to a 160% increase in data center power demand.
NextEra will be a big beneficiary of this trend because it is the biggest utility company in the US, where it provides power to over 12 million customers. It is also the biggest player in clean energy, since it produces power from wind, nuclear, and solar.
NEE stock price was trading at $74.5 on Wednesday while its HypeIndex score rose by 67%.
Positive hype
NextEra Energy has been one of the fastest-growing utility companies in the US as its annual revenue has jumped from over $19.2 billion in 2019 to over $28.1 billion in 2023. The average estimate is that it will cross the $30 billion level in 2025.
The company published robust second quarter financial results on Wednesday last week. Its operating revenues rose to $6 billion, with most of them coming from the Florida Power & Lighting company.
The company also boosted its profitability as the net profit dropped to $1.62 billion and $0.79 per share. While these numbers were lower than in Q2’23, they were better than the consensus estimates.
NextEra continued to boost its energy originations as it added over 3,000 megawatts of new renewables and storage projects to its backlog. Notably, one of the top clients during the quarter was Google, one of the biggest players in the artificial intelligence business.
NextEra also expects that its business will continue doing well this year. It expects that its EPS will be between $3.23 and $3.43 followed by $3.70 in 2025 and $4.0 and $4.32 in the next two years.
NextEra is often seen as an all-weather stock because its business does well in all market conditions. As it happened during the pandemic, people will always pay for their power regardless of their economic situation.
Most importantly, NextEra is one of the top dividend aristocrats that has raised dividends for 28 consecutive years. Its 5-year growth rate was 10.7% while its payout ratio is a healthy 59%.
Most Wall Street analysts have a buy rating on the company, with the only one bearish being from Mizuho. The average stock target is $80, higher than the present $74.
NextEra stock price has formed a bullish flag pattern on the daily chart, pointing to a potential rebound.
Negative hype
Despite its strong performance this year, the company has also attracted some negative hype that could affect its performance.
NextEra Energy has a big stake in NextEra Energy Partners (NEP), a partnership that invests in clean energy and provides regular dividend to investors. While it has a 13% dividend yield, there are concerns that NEP could be forced to slash its payouts this year.
A key theme for investing in NEE has been that it will benefit from the AI boom. However, as with the past hyped trends, there are chances that the AI boom will not translate to solid results for the company.
NEE is a highly indebted company. Its total long-term debt has jumped from $37.5 billion in 2019 to over $68 billion as in the last report. A big implication of this is that its interest expense has risen from $2.2 billion in 2019 to over $3.1 billion as the Fed hiked rates.
NextEra Energy trades at a big premium compared to its peers. It has a P/E ratio of 24, higher than the industry’s median of 18.
Summary of NextEra Energy
NextEra Energy is one of the leading utilities in the United States. It has some green credentials since most of its energy comes from renewable sources. The company is also a good all-weather stock that does well in all market conditions. With the stock forming a bullish flag, there are chances that it will have a bullish breakout in the coming months.
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