Renewables And GE Vernova Ventures Will Expand Energy Capacity

Key Takeaways

• Strategic investments in renewables and storage will significantly expand energy capacity, positioning NextEra for robust revenue growth.
  
• Capital efficiency and strategic collaborations, including smart grid and natural gas projects, are poised to enhance earnings and reduce costs.
  
• Rising costs, regulatory uncertainties, and reliance on legislative support pose risks to margins and growth in NextEra Energy's various energy segments.

Catalysts

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

• NextEra Energy's planned investment of $120 billion over the next four years in energy infrastructure, including renewables and battery storage, is expected to significantly boost their revenue growth by expanding their energy generation capacity to approximately 121 gigawatts.
  
• The continued focus on capital efficiency and innovation at Florida Power & Light (FPL), including smart grid investments that saved customers more than $3 billion per year, is likely to improve net margins by reducing operational costs and enhancing service reliability.
  
• FPL's anticipated base rate adjustments of $1.55 billion starting in 2026 and $930 million in 2027, along with strategic capital investments to meet the demands of Florida's fast-growing population, are expected to drive sustained revenue growth while maintaining customer bills below the national average.
  
• Energy Resources' record-breaking 12-gigawatt renewables and storage origination in 2024, with a backlog of more than 25 gigawatts, positions NextEra Energy for robust revenue expansion as they capitalize on strong demand for low-cost renewable energy solutions.
  
• The strategic collaboration with GE Vernova to develop natural gas and renewable energy projects provides a pathway for NextEra to deliver integrated energy solutions, which is anticipated to enhance earnings through long-term contracted assets and joint ventures.

NextEra Energy Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on NextEra Energy compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming NextEra Energy's revenue will grow by 15.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 28.1% today to 25.9% in 3 years time.
• The bullish analysts expect earnings to reach $9.9 billion (and earnings per share of $4.6) 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 price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 23.8x on those 2028 earnings, up from 20.0x 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 0.12% 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 increase in gas turbine costs due to constrained supply chains and limited supply might raise construction expenses for gas-fired generation, impacting future project costs and margins.
  
• The potential delays and increased expenses in nuclear recommissioning and small modular reactors could mean a slower contribution to meeting energy demand, possibly affecting revenue growth in the nuclear segment.
  
• The uncertainties around federal wind lease agreements and related policies could introduce risks to the wind energy segment's expansion, possibly affecting the earnings from this segment.
  
• The dependency on legislative support for renewable energy incentives could introduce risks if there are any changes to the investment tax credit structure, potentially impacting margins and earnings.
  
• Rising interest rates impacting capital market conditions might increase borrowing costs, affecting net margins due to an increased cost of capital.

Valuation

• The assumed bullish price target for NextEra Energy is $95.11, which represents one standard deviation above the consensus price target of $83.32. This valuation is based on what can be assumed as the expectations of NextEra Energy's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• 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 bullish analysts, you'd need to believe that by 2028, revenues will be $38.1 billion, earnings will come to $9.9 billion, and it would be trading on a PE ratio of 23.8x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $67.66, the bullish analyst price target of $95.11 is 28.9% 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.