Two important questions to ask before you buy NextEra Energy, Inc. (NYSE:NEE) is, how it makes money and how it spends its cash. This difference directly flows down to how much the stock is worth. Operating in the industry, NextEra Energy is currently valued at US$90b. I’ve analysed below, the health and outlook of NextEra Energy’s cash flow, which will help you understand the stock from a cash standpoint. Cash is an important concept to grasp as an investor, as it directly impacts the value of your shares and the future growth potential of your portfolio.
What is NextEra Energy’s cash yield?
NextEra Energy generates cash through its day-to-day business, which needs to be reinvested into the company in order for it to continue operating. What remains after this expenditure, is known as its free cash flow, or FCF, for short.
I will be analysing NextEra Energy’s FCF by looking at its FCF yield and its operating cash flow growth. The yield will tell us whether the stock is generating enough cash to compensate for the risk investors take on by holding a single stock, which I will compare to the market index. The growth will proxy for sustainability levels of this cash generation.
Free Cash Flow = Operating Cash Flows – Net Capital Expenditure
Free Cash Flow Yield = Free Cash Flow / Enterprise Value
where Enterprise Value = Market Capitalisation + Net Debt
After accounting for capital expenses required to run the business, NextEra Energy is not able to generate positive FCF, leading to a negative FCF yield – not very useful for interpretation!
What’s the cash flow outlook for NextEra Energy?NextEra Energy’s FCF may be negative today, but is operating cash flows expected to improve in the future? Let’s examine the cash flow trend the company is anticipated to produce over time. In the next few years, a double-digit growth in operating cash of 48% is expected. The future seems buoyant if NextEra Energy can maintain its levels of capital expenditure as well. Below is a table of NextEra Energy’s operating cash flow in the past year, as well as the anticipated level going forward.
|Current||+1 year||+2 year||+3 year|
|Operating Cash Flow (OCF)||US$6.6b||US$8.1b||US$9.2b||US$9.7b|
|OCF Growth Year-On-Year||23%||13%||6.4%|
|OCF Growth From Current Year||39%||48%|
Now you know to keep cash flows in mind, I recommend you continue to research NextEra Energy to get a better picture of the company by looking at:
- Valuation: What is NEE worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether NEE is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on NextEra Energy’s board and the CEO’s back ground.
- Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.