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Earnings Growth Is Key to NextEra Energy’s Outperformance

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Revenues

Utilities in the United States generally benefit from territorial monopoly. At $71.0 billion of market capitalization, NextEra Energy (NEE) is the largest utility among US utilities. It operates in Florida, the third most populous state in the country. Its population and economic growth are notably higher than the national average, which naturally helps expand the customer base of NextEra Energy’s principal utility, Florida Power & Light, and ultimately boosts revenues. NextEra Energy’s year-over-year average revenue growth in the last five years was more than 8.0%.

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Earnings

NextEra Energy’s natural gas–dominated generation mix improved its earnings in the last few years. Lower natural gas prices helped the Florida-based utility cut down fuel expenses significantly last year. Its fuel and purchased power expenses have been on a downtrend since 2014. It’s one of the fastest growing utility in the sector (XLU) (VPU). Its EPS (earnings per share) rose more than 8.0%, compounded annually, in the last decade. It expects EPS to rise 6.0%–8.0% for the next few years. Utilities’ average earnings growth is expected to be around 4.0%–6.0% going forward.

NextEra Energy Resources (or NEER), a competitive business segment of NextEra Energy, has a vast renewables generation portfolio and operates in 27 states. NEER sells its competitive generation under long-term agreements, unlike other competitive utilities (FE) (EXC) in the country. This enables revenue predictability and stability.

You can read more about NextEra Energy in Should Utility Investors Consider NextEra Energy?

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