According to its guidance, NextEra Energy (NEE) estimates its adjusted earnings for the current year to range between $5.15 and $5.35 per share. Earnings in the next two years are expected to rise by 4% and 6% year-over-year, respectively, when taken at midpoint.
NextEra estimates adjusted earnings in fiscal 2015 to range between $5.40 and $5.70, and in 2016, between $5.50 and $6.
Earnings should be stable
Given that NextEra’s capital expenditure plans favor its regulated business operations, the possibility that earnings results will surprise is low. Earnings from regulated power businesses are stable. And NextEra assumes 65% of its adjusted earnings will come from its regulated business segment by fiscal 2016.
This is in line with other diversified US power companies, which are shifting focus toward regulated power to curb volatility in earnings. Exposure to the unregulated power business makes earnings more volatile for power utilities.
American Electric Power Company (AEP) and FirstEnergy Corporation (FE) have in recent years focussed on their regulated businesses, even exiting from the unregulated segments to a large extent. Both of these companies are part of the Select Sector Utilities Select Sector Fund (XLU).
On the other hand, a pure unregulated player such as Dynegy (DYN) is looking to increase generation capacity in the unregulated segment.
NextEra’s contracted revenues set to rise
Currently, 63% of NextEra’s unregulated generation portfolio is contracted. This should only increase, as NextEra plans to make more of its wind and solar power generation facilities operate according to long-term contracts. NextEra projects regulated and long-term contracts will constitute 84% of its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) by 2016. NextEra’s earnings stability can only benefit from confirming more long-term contracts for its unregulated business.