NextEra Energy (NEE) has grown incredibly fast over the years. The utility has grown its earnings at a nearly 10% compound annual rate over the last decade. That’s faster than its utility peers (4.9%) and the S&P 500 (6.8%). The company has benefited from operating the largest electric utility in Florida (where the population is growing at an above-average clip) and its focus on renewable energy.
Add in its rapidly rising dividend, and NextEra Energy has delivered market-crushing total returns — 15.7% annualized over the last 20 years compared to 10.2% for the S&P 500.
Those catalysts helped power strong second-quarter results for the leading utility. They should give it plenty of fuel to continue growing briskly in the coming years. That potential makes NextEra a great growth stock to buy for the long haul.
Powerful growth drivers
NextEra Energy generated nearly $2 billion, or $0.96 per share, of adjusted earnings in Q1. That was a more than 9% increase from the prior-year period. The company continues to benefit from solid operational and financial performance in its Florida electric utility (FPL) and energy-resources segment.
FPL’s earnings grew by more than 5% in Q1, powered by new investments. The company is spending heavily to support its rapidly expanding customer base, modernize its generation fleet, and build out the country’s largest utility-owned solar energy platform. These investments are growing its earnings while reducing costs.
NextEra’s energy-resources segment grew its earnings by nearly 8% last quarter. The company benefited from new investments added to the portfolio and the strong performance of its existing clean-energy assets. Those growth catalysts helped offset headwinds from its gas-infrastructure assets.
A bright future
NextEra’s strong Q2 results and continued optimism about what’s ahead enabled it to reaffirm its long-term financial-guidance ranges. The company expects to generate between $3.23 to $3.43 per share of adjusted earnings this year. It anticipates its earnings will steadily grow over the coming years, rising to a range of $3.85 to $4.32 per share by 2027. That implies its earnings will grow 6% to 8% annually. Meanwhile, it forecasts dividend growth of about 10% per year through at least 2026.
The company remains convinced that its growth rate will likely be at or near the upper end of its ranges through 2027. A big factor powering that optimism is the robust demand for renewable energy. NextEra’s energy-resources segment added more than 3 gigawatts (GW) of new renewable and storage projects to its backlog during Q2. That was the second-best quarter in its history, beating last quarter’s performance, which had previously held that title. A notable driver was an agreement with Alphabet to supply 860 megawatts of renewable energy for data centers operated by Google. The company now has 22.6 GW of new renewable-energy projects in its backlog after accounting for the 1.6 GW it has completed over the past quarter.
Both of its businesses are benefiting from surging demand for renewable energy. Utilities (including FPL) are replacing less efficient and more expensive fossil fuel plants with lower-cost renewables. In addition, they’re benefiting from rising electricity demand. Forecasters anticipate that power demand will grow four times faster over the next 20 years compared to the last two decades, driven by multiple catalysts like artificial intelligence (AI) data centers, electric vehicles, and the onshoring of manufacturing. As a leader in renewables, few companies are in as strong a position to capitalize on this growth megatrend as NextEra Energy.
NextEra’s supercharged growth should continue
NextEra Energy expects to grow its adjusted earnings by around 8% annually through 2027, powered by robust renewable-energy demand. The utility could continue growing at an above-average rate for years to come, giving the expected acceleration ahead for U.S. power demand. That should give the company plenty of power to continue increasing its dividend (which yields nearly 3%) at a healthy rate. Those catalysts should enable NextEra Energy to generate strong total returns, making it look like a great stock to buy and hold for the long haul.
— Matt DiLallo
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Source: The Motley Fool