NextEra Energy Outpaces Industry in a Month: How to Play the Stock?
NextEra Energy's rising share price highlights its strong operational performance and growing customer base, which is fueling increased demand for its services. Falling interest rates are set to reduce capital servicing costs and improve the prospects for this capital-intensive company.
Price performance (One Month)
NEE is trading above its 50 and 200-day simple moving average ('SMA'), signaling a bullish trend. The 50-day SMA is a key indicator for traders and analysts to identify support and resistance levels. It is considered particularly important, as this is the first marker of an uptrend or downtrend of the stocks.
NEE 50 and 200 Day SMA
Should you consider adding NEE to your portfolio only based on positive price movements? Let's delve deeper and find out the factors that can help investors decide whether it is a good entry point to add the stock to their portfolio.
Factors Acting as Tailwinds for NEE Stock
Florida's expanding economy, driven by a robust job market, business migration and population inflows, has created fresh demand for electricity from all customer groups. NextEra Energy subsidiary, Florida Power & Light ('FPL'), serves more than 12 million people and plays a pivotal role in supporting Florida's ongoing economic development. As the state experiences accelerating population growth and economic expansion, the company stands to benefit from increasing electricity demand and a favorable regulatory climate.
NextEra Energy benefited through its well-timed strategic acquisitions, including Gulf Power, which expanded NEE's regulated utility footprint in Florida. The successful merger of Gulf Power into FPL streamlined operations, achieved meaningful cost synergies and strengthened the utility's customer base, laying a solid foundation for long-term earnings growth and dividend stability.
NextEra Energy, a capital-intensive company with a domestic focus, stands to gain from the Federal Reserve's decision to cut interest rates. The Fed has reduced the benchmark rate by 100 basis points, lowering it from the 5.25-5.5% range to 4.25-4.5%. Additional rate cuts anticipated in 2025 could further reduce the company's capital servicing costs.
The demand for reliable 24x7 clean electricity is rising in the United States, and NextEra Energy, through FPL-operated nuclear plants, can provide a stable and carbon-free energy to its customers. FPL operates four nuclear units in Florida, having a total generating capacity of 3,502 megawatts (MW).
NextEra Energy's other subsidiary, Energy Resources, continues to make long-term investments in clean energy assets. The company expects to be able to add 36.5-46.5 GW of new renewables in the 2024-2027 period to the generation portfolio via clean energy investments. Energy Resources' renewable backlog is more than 28 GW now.
NextEra Energy's Earnings Estimates Up Y/Y
NextEra Energy expects its 2025 earnings per share in the range of $3.45-$3.70, compared with $3.43 a year ago. The Zacks Consensus Estimate for NEE's 2025 and 2026 earnings per share indicates year-over-year growth of 7.29% and 7.95%, respectively. It expects to increase its earnings per share in the range of 6-8% annually through 2027 from the 2024 level.
The Zacks Consensus Estimate for Dominion Energy 's D 2025 and 2026 earnings per share indicates year-over-year growth of 22.38% and 5.65%, respectively. Dominion Energy has a portfolio of nearly 30,300 MW of electric-generating capacity and also operates nuclear power plants to produce clean energy.
NEE Stock Returns Better Than Its Industry
NextEra Energy's trailing 12-month return on equity (ROE) is 12.06%, ahead of the industry average of 10.41%. ROE is a financial ratio that measures how well a company uses its shareholders' equity to generate profits. The current ROE of the company indicates that it is using shareholders' funds more efficiently than its peers.
Another utility, American Electric Power 's AEP ROE is 11.68%, better than its industry. To further strengthen its operation, AEP intends to invest $54 billion over the 2025-2029 period.
NextEra Energy's Capital Return Program
NextEra Energy plans to increase the dividend rate annually by 10%, at least through 2026, from the 2024 base, subject to its board's approval. The current annual dividend of the company is $2.27 per share, and the dividend yield of 3.05% is better than the Zacks S&P 500 Composite's yield of 1.52%. Check NEE's dividend history here.
Dominion Energy's current annual dividend is $2.67 per share, reflecting a dividend yield of 4.65%.
NextEra Energy's Shares Trading at a Premium
The company is currently valued at a premium compared to its industry on a forward 12-month P/E basis. NextEra Energy is currently trading at 19.42X compared with the industry average of 14.63%.
American Electric Power is trading at P/E F12M of 17.3X, a premium compared to its industry.
Wrapping Up
NextEra Energy maintains steady performance, supported by increasing demand for clean energy across its service areas. The company is consistently expanding its clean energy portfolio to keep pace with this rising demand. Florida's strong economic growth continues to present new opportunities for expansion.
With improved earnings estimates and a solid return on equity, holding this Zacks Rank #3 (Hold) stock remains a sound decision. However, since NEE is currently trading at a premium, it may be prudent to wait for a more attractive entry point before adding to positions.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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