To The Moon

$Nextera Energy Inc(NEE-N)$ $NextEra Energy, Inc.(NEEXU)$ $DJIA(.DJI)$ 

NextEra Energy, Inc. (NEE) is the largest utility and renewable energy company in America. NEE has two business segments: 1) Utility business via Florida Power & Light Company (FPL), America’s largest rate-regulated electric utility that provides clean electricity to more than 12m people across Florida, with c.28,450 megawatts (MW) of net generating capacity; and 2) Energy Resources business, primarily renewables, via NextEra Energy Resources, LLC (NEER), world’s largest generator of renewable energy from wind and solar and a world leader in battery storage. FPL and Energy Resources contributed 59% and 41% to 2Q22 EPS respectively.

Investment Overview

Steady utility business + exciting renewable growth. NEE has a unique proposition and wide economic moat as one of the largest utility and renewable companies in the America. Its regulated utility business is seeing slow but steady growth as Florida continues to see in-migration and thus rising utility demand. Meanwhile, its renewable business offers plenty of growth ahead, playing a critical role in realising the company’s industry-leading Real Zero goal announced in Jun-22, which commits to eliminate carbon emissions from its operations by no later than 2045. In addition, there are targets to convert 16GW of existing natural gas units to run on green hydrogen.

Doubling renewable capacity by 2025. NEE is strongly positioned to take advantage of the energy transition underway in the U.S. It targets to double its solar and wind business from 24 gigawatts (GW) capacity in 2021 to 46-53GW capacity in 2025 and expand its battery storage capacity by 6-8 folds to 6-8GW during the same period. Toward this goal, it has originated approximately 18.3GW in its backlog of signed contracts. It is expected to spend US$95bn on capital investments in 2022- 2025. Management is guiding 12% y-o-y EPS growth in 2022 and 7-9% pa through 2025.

Strong execution; healthy balance sheet. While the growth target might appear ambitious for such a large utility company amidst slowing economic activity, NEE has demonstrated excellent track record to weather through cycles, delivering 8.4% EPS CAGR the past 15 years (way above top 10 US power companies' 3% CAGR). Besides accelerated growth from renewables, it also has best-in-class operation and maintenance (O&M), achieving continuous cost savings through technology innovation and digitalisation that allows NEE to offer low-cost clean energy. Balance sheet remains relatively healthy at 1.3x net debt to equity and 4.8x net debt to EBITDA considering its rapid organic and inorganic growth.

Rising interest rate could pose challenges on its expansion plans and lower its returns. NEE has measures in place and secured financing arrangements for its project pipeline. Supply chain disruptions are expected to cause 6-month delay for 2022-2023 solar and storage projects and potential cancellation for c.2GW of contract projects. It has thus far been able to navigate the industry headwinds well without material disruptions. Utilities business in Floria is sensitive to regulatory changes.

It offers investors the best of both worlds - defensive utility and high growth renewable that stands to outperform in current turbulent environment. Its dividend growth of ~10% over the past decade is expected to sustain through 2024 at least, supported by EPS growth.

Looks like a decent stock to hold at the momoment.

@TigerStars 

DYODD