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NextEra Energy Earnings: Results Support Long-Term Thesis; Shares Attractive

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We are maintaining our $82 fair value estimate for narrow-moat NextEra Energy NEE after the company reported third-quarter operating earnings per share of $0.94, up from $0.85 in the same quarter last year.

Management reaffirmed its 2023 EPS guidance of $2.98-$3.13 and 6%-8% annual earnings growth expectation through 2026, both within our outlook. Importantly, management reiterated that it expects the latter to be at the high end of the range despite market conditions.

We continue to view the recent selloff in the stock as a buying opportunity for long-term investors. However, we think NextEra’s return to a premium utility will take time. Management will need to prove it can maintain constructive regulatory relationships in Florida and continue to build out and develop its renewable energy project backlog in a higher-interest-rate environment, both of which we assume in our fair value estimate.

At NextEra Energy Resources, the company added a record 3,245 megawatts of renewable energy and storage projects to its backlog, highlighting the continued demand for renewables. The unit’s backlog is now 21 gigawatts, supporting our expectations for the company to achieve the midpoint of the unit’s 32.7-41.8 GW development target.

At FP&L, regulatory capital growth continues to be strong, up 13.6% from the same year-ago quarter. The unit earned an 11.8% return on equity, which is an increase allowed in the current rate agreement to account for higher rates.

A strong balance sheet should help NextEra manage higher interest rates. The company’s funding plan for 2024-26 includes a mix of cash flow from operations, debt, tax equity, and equity issuances.

The company’s $20.5 billion in interest-rate swaps should help mitigate the impact of higher rates. Management estimated a 50-basis-point increase in interest rates would have no impact on 2024 EPS and a manageable $0.03-$0.05 impact in 2025 and 2026. Plans for $3 billion in equity issuance are in line with our estimates.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Andrew Bischof

Strategist
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Andrew Bischof, CFA, CPA, is an equity strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers regulated utilities, diversified utilities, and independent power producers.

Before joining Morningstar in 2011, Bischof was a senior treasury analyst for Mead Johnson Nutrition. Previously, he was a group audit officer for Bank of America in Chicago, and before that, an auditor for Ernst & Young.

Bischof holds a bachelor’s degree in business administration and accounting and a master’s degree in accounting from the University of Wisconsin. He also holds a master’s degree in business administration, with a concentration in finance, from Indiana University’s Kelley School of Business and the Chartered Financial Analyst® and Certified Public Accountant designations.

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