It’s hard to believe, but way back in January 2017, I suggested that NextEra Energy (NYSE:NEE) should replace DuPont de Nemours (NYSE:DD) in the Dow Jones Industrial Average. I thought NextEra Energy stock was a buy.
And I still do. Here’s why.
Renewable Energy Is Not Going Away
Before I get into the gist of my argument, I want to pat myself on the back. Since my January 2017 article, DD has lost 27% of its value — it’s likely a closer race if you add in the Dow (NYSE:DOW) and Corteeva (NYSE:CTVA) stock received in its complicated three-way split in 2019 — while NEE is up 157% in the nearly four years since.
NextEra really could have helped the Dow’s performance. It still could, but that’s a subject for another day. What gets me revved up about the Florida utility is the commitment it has to renewable energy.
It reported excellent third-quarter results on Oct. 21 with adjusted earnings of $2.66 per share, 11.3% higher than a year earlier.
“NextEra Energy delivered strong third-quarter results and remains well-positioned to meet our 2020 and longer-term growth prospects,” said Jim Robo, its chief executive officer. “We grew adjusted earnings per share by more than 11% year-over-year, reflecting strong execution across all of our businesses.”
Breaking out the various business units: Florida Power & Light (FPL) generated $1.54 per share or 54% of its overall profits, Gulf Power contributed 18 cents (7%), and NextEra Energy Resources generated $1.12 (39%).
Referred to as NEER, this is the company’s clean and renewable energy business. The $1.12 per share was 23% higher than a year ago.
“NextEra Energy Resources had another excellent period of origination during the third quarter, adding nearly 2,200 MW to its renewables backlog. Since the second-quarter financial results call in July, NextEra Energy Resources added 580 MW of wind, 911 MW of solar, 594 MW of battery storage and 86 MW of wind repowering to its renewables backlog,” its Q3 2020 press release stated.
The most impressive highlight of its earnings report was that it finished the quarter with a backlog at NEER of more than 15,000 megawatts, which is more than the current renewables portfolio.
Between NEER, FPL’s major contribution, and the savings it will achieve from merging Gulf Power into FPL, it expects to earn between $2.77 and $2.97 a share in adjusted earnings by 2023. That’s based on a four-for-one stock split in October and 6% to 8% growth.
Considering the third-quarter growth rate was 11% higher, I expect it to deliver the goods, with renewable energy leading the charge.
I’m Not the Only One That Likes NextEra Energy Stock
InvestorPlace’s Neil George recently called NextEra an ESG buy post-election.
“This has led the poster child of the ESG utility market,” NextEra Energy, “in the Total Return model portfolio of Profitable Investing to really perform. NextEra Energy is one of the largest wind and solar power companies in the U.S. and the world,” George wrote on Nov. 12.
“It has it deployed in its regulated market in Florida and has expanded around the nation and beyond in its unregulated business. The stock has generated a return since added to the Total Return Portfolio of Profitable Investing of 684.90%, and for the trailing year it has returned 42.57% — which is well above the return of the S&P 500 Index.”
There isn’t a utility that can keep up with NextEra.
Over the past 15 years, it has had an annualized total return of 15.3%, five times its peers in the utilities sector, and 554 basis points higher than the entire U.S. markets.
In early November, CNBC had an interesting article that discussed how it surpassed Exxon Mobil (NYSE:XOM) in the fall in terms of market capitalization for the first time. This despite still having a big chunk of its FPL power generation from coal and natural gas.
“As the economy becomes more electrified and power fleets transition increasingly away from coal and to renewables, NextEra benefits from both: a growing utility customer rate base with more demand for electricity in the future from industries like autos, which helps them grow business and invest in the grid, while also being a major player in renewable energy project development,” CNBC contributor Eric Rosenbaum commented.
He’s absolutely right.
The company is ideally positioned to handle whatever comes down the pike in the next two to three years. That’s excellent news if you’re a shareholder.
NextEra Energy is a long-term buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.