NextEra Energy: Florida City Gas Sale Improves NextEra’s Sustainability Profile

We are maintaining our $82 per share NextEra Energy NEE fair value estimate after its Florida Power and Light, or FPL, subsidiary announced an agreement to sell its Florida City Gas, or FGC, subsidiary to Chesapeake Utilities Corporation for $923 million. Our narrow moat remains unchanged.

Since the beginning of the year, NextEra Energy’s stock has fallen 22%, lagging the 9% drop in the Morningstar US Utilities Index and the 14% gain in of the Morningstar US Market Index. NextEra Energy now has a rare 4-star rating, providing investors an opportunity to acquire at a significant discount one of the fastest-growing utilities that is best positioned for the clean energy transition.

The FGC transaction is too small to have a material valuation impact, but FGC is NextEra’s only natural gas distribution subsidiary. The sale improves the company’s already attractive sustainability profile. FPL has been closing coal generation and adding renewable energy, which FPL expects to grow to 20% of its total generation by the end of the decade. NextEra’s Energy Resource subsidiary develops wind, solar, and battery storage to sell to third parties.

The FGC transaction includes $145 million of intercompany debt, and management expects it to be accretive once it closes. We don’t expect any additional asset divestitures and expect the transaction will receive all necessary regulatory approvals in the next several months. The gain on the sale will be excluded from adjusted earnings.

As part of its update, NextEra Energy reaffirmed its 2023 EPS guidance of $2.98 to $3.13 per share and 2024 EPS guidance of $3.23 to $3.43 per share, both in line with our estimates. The company expects to grow earnings 6% to 8% through 2026, and we expect the company to achieve the high end of the range.