What We Learned by Analyzing NextEra’s Credit Profile

At the end of the second quarter of 2016, NextEra Energy (NEE) had total debt of $32.3 billion. Its debt-to-equity ratio is now 1.3x, while its debt-to-market-capitalization is 0.6x. NextEra Energy’s leverage is expected to inflate even more due to its acquisition of Oncor.

NextEra Energy has a net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio of 4x, which is lower than Duke Energy’s (DUK) 5x. Its peer Exelon (EXC) has a net debt-to-EBITDA ratio of 4.6x.

Remember, the net debt-to-EBITDA ratio shows how many years it will take for a company to repay its debt given its EBITDA, if debt and EBITDA are held constant.

The utility industry (IDU) is an asset-rich business and involves heavy amounts of debt, and so leverage is an important metric in analyzing utilities. Debt-to-asset ratio represents the proportion of a company’s assets that are financed by debt, and it assesses the financial risk of a company. NextEra Energy has a debt-to-asset ratio of 0.4x, which is equal to Duke Energy’s ratio. Exelon has a debt-to-asset ratio of 0.3x.

Standard & Poor’s Financial Services has a “stable” outlook for NEE with a credit rating of “A-.” By comparison, Duke Energy has an “A-“rating and a negative outlook. Exelon has a “BBB” credit rating from S&P, with a stable outlook.