NextEra Energy, Inc. (NEE) and Brookfield Renewable Partners L.P. (BEP) are two of the leading owners and operators of renewable power assets. NEE operates long-term contracted assets with a focus on renewable generation facilities. BEP owns a portfolio of renewable power generating facilities.

With various government incentives and rising climate change concerns leading to higher demand, renewables are now able to compete at grid-parity prices. Leading renewable players such as NEE and BEP, having strong balance sheets, are well-positioned to grow substantially based on this tailwind.

Both stocks have generated significant returns over the past five years. While BEP returned 200.3% over this period, NEE gained 190.9%. In terms of their past six-month performance, BEP is the clear winner with 52.8% gains versus NEE’s 22.9% returns. But which of these stocks is a better pick now? Let’s find out.

Latest Movements

On December 8, NEE announced the acquisition of eIQ Mobility, the leading software provider of mobility planning solutions. It made the acquisition to access the best insights into fleet conversion. This will help the company offer commercial, industrial, municipal, and utility customers robust fleet assessments.

On December 1, NextEra Energy Partners, a subsidiary of NEE, announced the pricing of a $600 million senior notes offering. The company expects to use the proceeds to redeem a portion of its outstanding senior notes due 2024, lowering its overall interest burden.

On December 14, BEP announced that the Toronto Stock Exchange had accepted its intention of to renew its normal course issuer bid for its limited partnership units. This allows BEP to repurchase 13.74 million shares and 8.61 million exchangeable shares, thereby boosting shareholder returns on the stock.

The company also recently announced a definitive agreement with Exelon Generation Company to acquire a scale distributed generation development platform comprising 360 megawatts across nearly 600 sites in the U.S. This should help BEP to increase its portfolio and deliver high value projects to its customers to drive additional value.

Recent Financial Results

In the third quarter ended September 30, 2020, NEE’s net income surged 39.8% year-over-year to $1.23 billion, primarily due to Florida Power & Light’s initiative to deliver affordable and reliable power to customers. The company’s EPS has grown 38.1% year-over-year to $2.50.

NEE’s FPL segment’s average number of customers has increased by nearly 80,000 from the prior-year quarter. The company added 580 MW of wind, 911 MW of solar, 594 MW of battery storage, and 86 MW of wind repowering to its renewables backlog over this period.

BEP’s cash and cash equivalents for the third quarter ended September 30, 2020 grew 8.1% year-over-year to $482 million. The company’s wind and solar segments fund from operations rose 70% from the year-ago value.

Past and Expected Financial Performance

NEE’s revenue and total assets have grown at a CAGR of 2.5% and 9.3%, respectively, over the past three years. The company’s tangible book value grew at a CAGR of 7.8% over this period.

Analysts expect the company’s revenue to increase 20.9% in the current quarter, and 6.6% next year. NEE’s EPS is expected to grow 9.6% in the current year, and 8.7% next year.

BEP’s revenue and total assets have grown at a CAGR of 3.4% and 16.3%, respectively, over the past 3 years. The CAGR of the company’s tangible book value has been 5.8%.

Analysts expect the company’s revenue to increase 8.6% in the current quarter, and 14.2% next year. BEP’s EPS is expected to grow 200.1% in the current quarter.

Profitability      

NEE’s trailing-12-month revenue is 6.47 times BEP’s. But BEP is more profitable with a gross profit margin of 65.4% versus NEE’s 59.6%.

Moreover, BEP’s leveraged free cash flow margin of 23.7% compares favorably with NEE’s negative values.

Valuation

In terms of trailing-12-month Price/Sales, NEE is currently trading at 8.01x, 23.9% more expensive than BEP, which is currently trading at 5.79x. NEE’s trailing-12-month Price-to-Book of 3.91x is 79.4% higher than BEP’s 2.18x.

However, NEE is less expensive in terms of trailing-12-month EV/Sales (10.83x versus 16.09x).

Thus, BEP is the more affordable stock here.

POWR Ratings

NEE is rated “Buy” in our proprietary POWR Ratings system, while BEP is rated “Strong Buy”.  Here are how the four components of overall POWR Rating are graded for NEE and BEP:

NEE has an “A” for Peer Grade, a “B” for Trade Grade and Buy & Hold Grade, and a “C” for Industry Rank. In the 63-stock Utilities – Domestic industry, it is ranked #5.

BEP has an “A” for Trade Grade and Buy & Hold Grade, a “B” for Peer Grade, and a “C” for Industry Rank. It is ranked #2 of 18 stocks in the MLPs – Other industry.

The Winner

Both NEE and BEP are good investment bets considering their market dominance and continued expansion. However, BEP appears to be a better buy because it is a cheaper investment option to the industry’s strong growth potential.

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NEE shares . Year-to-date, NEE has gained 25.31%, versus a 16.33% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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