Battery Storage And Renewables Will Add 25 Gigawatts Of Capacity

Key Takeaways

• Strategic investments in battery storage and renewable energy capacity offer substantial growth in revenue and operational efficiency.
  
• Strong demand from commercial and industrial sectors, alongside disciplined financial planning, supports ongoing earnings growth and shareholder value.
  
• Rising costs and challenges in power generation technologies, workforce, and competition could impact NextEra Energy's margins, revenues, and project execution timelines.

Catalysts

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

• NextEra Energy plans to invest nearly $50 billion from 2025 to 2029, adding more than 25 gigawatts of new battery storage by 2034, which is expected to significantly enhance their generation capacity, impacting revenue growth positively.
  
• The strategic shift to domestic sourcing and partnerships ensures negligible tariff exposure on batteries, providing a competitive pricing advantage that can improve margins and cost efficiency, thereby enhancing net margins.
  
• NextEra Energy Resources' strong backlog additions of approximately 3.2 gigawatts of new renewables and battery storage, driven by demand from both commercial and industrial customers as well as power companies, suggest continuous revenue and earnings growth opportunities.
  
• Continued robust customer growth at Florida Power & Light (FPL), one of the fastest-growing utility markets, with over 335,000 new accounts projected by 2029, indicates promising future revenue and returns on capital employed.
  
• Strategic management of tariff exposure and interest rate hedges to $37 billion, along with enhanced supplier relationships, suggests disciplined financial planning and operational efficiencies, which could support improved earnings and shareholder value.

NextEra Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming NextEra Energy's revenue will grow by 11.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 28.1% today to 26.7% in 3 years time.
• Analysts expect earnings to reach $9.2 billion (and earnings per share of $4.35) by about April 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 22.3x on those 2028 earnings, up from 19.7x today. This future PE is greater than the current PE for the US Electric Utilities industry at 20.5x.
• Analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

NextEra Energy Future Earnings Per Share Growth

Risks

• The increasing costs and scarcity of gas turbines are contributing to the significantly higher expenses for building gas-fired plants, which can place upward pressure on capital expenditures, potentially impacting net margins.
  
• Limited scale and higher costs of nuclear and gas-fired generation technology compared to renewables could contribute to a mismatch in meeting the predicted electricity demand and may affect future revenues if not timely addressed.
  
• Risks associated with tariff exposure, despite efforts to mitigate it through diversifying supply chains and contractual protections, could lead to increased project costs and impact earnings if passed on to customers.
  
• Potential challenges in executing plans including high workforce turnover and skills shortages in critical power plant construction roles could delay projects and escalate costs, affecting net margins and revenue timelines.
  
• The high competition in renewables with small developers risks increasing NextEra's operational scale pressure, which could impact future revenues if market share shifts unfavorably.

Valuation

• The analysts have a consensus price target of $83.081 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 $103.0, and the most bearish reporting a price target of just $52.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $34.4 billion, earnings will come to $9.2 billion, and it would be trading on a PE ratio of 22.3x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $66.64, the analyst price target of $83.08 is 19.8% 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.