Summary
Low-beta (0.30), $170 billion-market cap NextEra attracts interest for its renewables portfolio & its position as the largest US regulated retail utility, located in high-growth Florida.
While high European gas prices & failure of multi-trillion US bill emphasizing renewables have cooled solar/wind ardor, NextEra’s renewable slate has good momentum and an intriguing new venture.
The majority of FPL is gas-fired generation. In the US, gas prices bumped up in 2021, but increasing supply has already begun tamping them down.
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krblokhin/iStock via Getty Images Although echoes of the failure to pass renewables-promoting Build Back Better and February 2021 Winter Storm Uri continue, the next expected big issue for utilities is inflation, perhaps offset by friendlier regulatory attitudes towards natural gas (and nuclear) generation of electricity. NextEra (NYSE: NEE ) is already a low-carbon pro as almost three-quarters of its actual generation in 2020 was natural gas.
NextEra Energy is a holding company for a two-part regulated retail utility (Florida Power & Light and Gulf Power) and an unregulated generation subsidiary. Although Gulf Power merged into Florida Power & Light January 1, 2021, financials are reported separately throughout 2021. Thus, the three operations reporting segments currently are Florida Power & Light (FPL), a regulated utility serving 5.6 million customer accounts (11 million people) and the largest US rate-regulated retail electric utility; Gulf Power, a regulated utility serving 470,000 customers in eight counties in northwest Florida; and NextEra Energy Resources (NEER), an unregulated subsidiary that generates clean energy from solar, wind, and nuclear power.
At a market capitalization of $170 billion and a beta of 0.30, NextEra Energy is less volatile than the overall stock market, a plus for investors seeking stability. However, its dividend yield is only 1.8% and like all utilities, it faces risks from inflation and rising interest rates.
Strong national and Florida state economic growth have boosted electricity demand. After a bump in gas prices, NextEra still has access to generous US natural gas reserves and production. Despite the non-passage of BBB, NextEra’s existing big slate of renewables development projects has significant momentum. Finally, the company is extending into water utility projects in what could be another key growth venture with strong potential. Macro
The national economy is strengthening and the Florida state economy is booming. Growth in electricity demand is directly tied to economic growth, so FPL’s demand prospects are good.
Natural gas peaked above $6.00/MMBTU during the fall of 2021, a negative for electricity generators like NextEra. However, US inventories and production rates have recently normalized back up to pre-Covid rates even after absorbing an extra 10 BCF/D of LNG export demand (about 10-11% of total US demand).
While the BBB bill, with an emphasis on spending for renewable projects, didn’t pass virtually every state continues to encourage the buildout of solar and wind capacity by its utilities-and NextEra is a premiere renewables project developer. Third Quarter 2021 Results And Guidance
For the third quarter of 2021, NextEra’s GAAP net income was $447 million, or $0.23/share. Non-GAAP adjusted 3Q21 earnings were $1.48 billion or $0.75/share. The largest difference between the two is that adjusted earnings exclude the effects of non-qualifying hedges which was a $1.23 billion hit to income, only somewhat offset by a smaller income tax benefit of $325 million. Non-qualifying hedges divide into five parts, the largest of which are electricity-related positions and gas infrastructure related positions.
For the first nine months of 2021, NextEra’s GAAP net income was $2.4 billion or $1.20/share. Adjusted earnings were $4.2 billion or $2.13/share. Again, the largest difference between the two was adjusted earnings exclude net losses associated with non-qualifying hedges of $2.26 billion, with an offsetting income tax benefit of $551 million.
Cash flow from operations for the first nine months was $6.2 billion.
For 2021 NextEra Energy’s reporting is segmented into FPL, Gulf Power, and NextEra Energy Resources (NEER). Adjusted earnings for each segment for the first nine months of 2021 are shown below. Credit: NextEra Energy and Starks Energy Economics, LLC
Company management forecasts adjusted EPS for 2021 to be toward the high end of $2.40-$2.54 and expects 2022 and 2023 adjusted EPS to be 6-8% above the 2021 level. The company also expects to grow dividends per share at a roughly 10% rate in 2022. Natural Gas Prices
As the graph above suggests, natural gas is the primary generation fuel in Florida.
The Henry Hub (Louisiana) natural gas futures price for February 2022 […]
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