FPL And Energy Resources Will Expand Renewable And Storage Projects Through Major Investments

Key Takeaways

• Major investments in energy infrastructure and renewables set NextEra Energy for significant future revenue growth and expanded capacity.
  
• Strategic positioning of FPL leverages Florida's population growth for increased electricity demand and revenue boost.
  
• External challenges like interest rate volatility, regulatory outcomes, and supply chain constraints could impact NextEra's ambitious investment plans, renewable projects, and growth strategies.

Catalysts

Through its subsidiaries, generates, transmits, distributes, and sells electric power to retail and wholesale customers in North America.

• NextEra Energy plans to invest $120 billion in energy infrastructure over the next four years, aiming to grow their capacity to 121 gigawatts, which would boost future revenue through increased capacity and energy delivery.
  
• Florida Power & Light (FPL), a subsidiary of NextEra Energy, is strategically positioned to benefit from Florida’s projected population growth rate of 60% above the national average by 2030, leading to growth in electricity demand, which is set to boost future revenues.
  
• Energy Resources, another subsidiary, has a growing backlog of renewable and storage projects totaling over 25 gigawatts, and expectations to increase this to 75 gigawatts by the end of 2027, pointing towards significant future revenue growth from renewables.
  
• NextEra Energy’s framework agreements for potential developments of up to 15 gigawatts of renewables and storage projects by 2030 with large partners, like GE Vernova, could enhance their revenue growth and earnings due to expanded customer base and project scale.
  
• The proposed rate increase from FPL's upcoming rate case for base rate adjustments starting in 2026 aims to reflect appreciable higher costs, thus securing future revenue and maintaining strong net margins despite increased investment expenditures.

NextEra Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming NextEra Energy's revenue will grow by 12.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 28.1% today to 26.3% in 3 years time.
• Analysts expect earnings to reach $9.3 billion (and earnings per share of $4.39) by about January 2028, up from $6.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.9x on those 2028 earnings, up from 20.9x today. This future PE is greater than the current PE for the US Electric Utilities industry at 20.3x.
• Analysts expect the number of shares outstanding to grow by 0.96% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

NextEra Energy Future Earnings Per Share Growth

Risks

• NextEra Energy's ability to execute on its ambitious plan of investing $120 billion over the next four years may be challenged by external factors such as interest rate volatility and inflation, impacting capital costs and net margins.
  
• The company's reliance on rate increases to maintain FPL's earnings and execute future investments could be hindered by regulatory outcomes and customer pushback, potentially affecting revenue growth.
  
• NextEra's focus on renewables and storage could face delays due to supply chain constraints and permitting challenges, impacting project timelines and possibly affecting projected earnings.
  
• The cost and timeline uncertainty associated with new gas turbine projects and nuclear advancements could increase capital expenditure risks and affect long-term profitability margins.
  
• The new administration's policies and potential IRA changes bring uncertainty to the renewables and energy storage sectors, possibly impacting future revenue and growth strategies.

Valuation

• The analysts have a consensus price target of $84.81 for NextEra Energy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $102.8, and the most bearish reporting a price target of just $58.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $35.3 billion, earnings will come to $9.3 billion, and it would be trading on a PE ratio of 22.9x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of $70.54, the analyst's price target of $84.81 is 16.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.