This article has been written by an expert contributor Munro Partners
Who are they?
NEE operates two primary businesses in electricity generation in the US. Firstly, Florida Power and Light (FPL), which as the name suggests, is a Florida utility, and secondly, Nextera Energy Resources (NEER) which is the largest renewables and storage developer in the US.
FPL’s investment plan is forecast to result in a high single-digit earnings growth rate over the longer term, driven by its programs to decarbonise Florida’s power mix (replace coal and natural gas plants with cheaper renewable alternatives and battery storage). FPL also has considerable storm hardening investment programs, required to protect the state’s electricity grid against increasingly adverse weather events.
Why do we like NextEra Energy
NEER is the leading renewables and storage developer in the US with very attractive returns and will capitalise on the explosive growth ahead in renewables and storage. The company estimates that the US renewables market will grow at an 11% CAGR to 2050 (see graph below) and as the industry leader, we consider it to be in the box seat to capture its fair share of the clean energy transition. We expect NEER to generate more than 10%p.a. earnings per share growth for many years into the future.
Aside from the pure financials, NEE, at its recent capital markets day, launched an ambitious plan to reach zero operational emissions by 2045 without reliance on carbon offsets, with an 82% reduction due by 2030, despite already generating energy at half the US average emissions. Although NEE is already well known as a leading renewables player, we believe this announcement further enhances its ESG profile with investors and hence should support or even enhance the valuation rating that the market assigns the stock.
From an earnings perspective, with long-term earnings per share and dividend per share growth profile of around 10%p.a. we consider NEE to be an attractive long-term portfolio holding.
Watch this video to learn more about Clean Energy as a sub-area of interest. Written by Munro Partners, July 2022.
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