Utility company NextEra Energy, Inc. (NEE - Get Rating) in Juno Beach, Fla., generates, transmits, distributes, and sells electric power to retail and wholesale customers. The company generates energy through solar, wind, natural gas, and coal facilities and operates long-term contracted assets consisting of clean energy solutions.

NEE’s CEO John Ketchum has criticized the U.S. Commerce Department over its probe into solar panel imports and called on Congress to pass ‘Build Back Better’ legislation to combat high energy prices. NEE executives have warned that 2.1 – 2.8 gigawatts worth of 2022 solar and storage projects might be pushed back to 2023. However, the company expects to add 23 to 30 gigawatts of renewables over the four years ending 2024.

NEE’s $1.70 annual dividend yields 2.37% at its prevailing share price. On February 18, NEE declared a common quarterly dividend of $0.425, which was payable on March 15. The dividend marked an approximate 10% increase from the prior-year comparable dividend. The company’s dividend payouts have increased at an 11.3% CAGR over the past three years and a 12% CAGR over the past five years. The company has 27 years of consecutive dividend growth. NEE’s stock has declined 23.1% in price year-to-date and 16.8% over the past month. However, it has gained 1.2% over the past five days to close yesterday’s trading session at $71.84.

Here are the factors that could affect NEE’s performance in the near term.

Mixed Financials

For its fiscal first quarter, ended March 31, NEE’s operating revenues decreased 22.4% year-over-year to $2.89 billion. Its operating income declined 215.8% from the prior-year quarter to negative $775 million. However, its adjusted earnings increased 9.4% from the same period the prior year to $1.46 billion, while its adjusted EPS rose 10.4% from the prior-year period to $0.74.

Favorable Analyst Expectations

The consensus EPS estimates of $0.72 and $0.78 for the quarters ending June 2022 and September 2022, respectively, indicate a 1.4% and 4% year-over-year increase. Likewise, the $5.27 billion and $5.88 billion consensus revenue estimates for the same quarter reflect a 34.2% and 8.5% rise from their respective prior-year periods.

Stretched Valuations

In terms of its forward non-GAAP P/E, NEE is trading at 25.51x, which is 26.6% higher than the 20.14x industry average. The stock’s 9.67 forward EV/Sales multiple is 117.2% higher than the 4.46 industry average. In terms of its forward Price/Sales, it is trading at 6.50x, which is 171.1% higher than the 2.40x industry average.

Mixed Profit Margins

NEE’s trailing 12-month gross profit margin and EBITDA margin of 45.11% and 37.12%, respectively, are 9.43% and 10.91% higher than their respective industry averages of 41.23% and 33.47%.

However, its trailing 12-month ROE, ROTC, and ROA of 3.97%, 1.10%, and 1.00%, respectively, are 54.56%, 70.89%, and 59.35% lower than their respective industry averages of 8.75%, 3.79%, and 2.47%.

POWR Ratings

NEE has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

NEE has a Quality grade of C in sync with its mixed profitability margins. The stock has an F grade for Value, which is consistent with its stretched valuations.

In the 64-stock Utilities – Domestic industry, NEE is ranked #21. The industry is rated F.

Click here to see the additional POWR Ratings for NEE (Growth, Momentum, Stability, and Sentiment).

View all the top-rated stocks in the Utilities – Domestic industry here.

Bottom Line

The company’s long history of dividend growth is impressive. However, the Department of Commerce’s probe of solar imports might strain NEE’s operational capability. Moreover, its stretched valuations and lean ROE look concerning. Hence, I think it might be wise to wait for a better entry point in the stock.

How Does NextEra Energy, Inc. (NEE) Stack Up Against its Peers?

While NEE has an overall POWR Rating of C, one might consider looking at its industry peers, Brookfield Infrastructure Corporation (BIPC - Get Rating) and Otter Tail Corporation (OTTR - Get Rating), which have an overall B (Buy) rating.

NEE shares were trading at $72.06 per share on Friday afternoon, up $0.22 (+0.31%). Year-to-date, NEE has declined -22.39%, versus a -12.84% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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