NextEra Energy, Inc. (NEE), a leading clean energy company, released its third-quarter 2023 financial results on October 24, before the market opened. The company’s earnings surpassed analysts’ expectations; however, its revenue lagged. NEE reported third-quarter earnings per share of $0.94, above analysts’ estimate of $0.88 and up 10.6% year-over-year.

The company’s operating revenues came in at $7.17 billion, missing the consensus estimate of $7.18 billion but an increase of 6.7% from the prior year’s quarter.

“NextEra Energy continued its strong execution during the third quarter and has delivered adjusted earnings per share growth of approximately 10.8% through three quarters,” said John Ketchum, chairman, president, and CEO.

Ketchum added that given the strength of both its businesses, including FPL and NextEra Energy Resources, the company is confident that its history of continuous improvement, innovation and financial discipline, combined with its solid balance sheet and competitive advantages, positions it to continue creating long-term value for its customers and shareholders.

NEE’s long-term financial guidance remains unchanged. For this year and 2024, the company expects adjusted EPS to be in the ranges of $2.98-$3.13 and $3.23-$3.43, respectively. For 2025 and 2026, its adjusted EPS is expected to be in the ranges of $3.45 to $3.70 and $3.63 to $4, respectively.

Also, NextEra Energy expects to increase its dividends per share at a nearly 10% rate per year through at least next year, off a 2022 base.

However, NEE’s wholly owned subsidiary, NextEra Energy Partners (NEP), cut its annual unit distribution growth rate to 5%-8% through at least 2026, with a target rate of 6%. Previously, the company anticipated its annual dividend payout to grow by 12% to 15% through at least 2026.

John Ketchum indicated that higher interest rates affected the financing need to grow distributions at 12%. Further, he added that trying to maintain the 12% threshold “has had an impact on NextEra Energy Partners’ unit price and yield.”

He argued that by slashing its dividend growth outlook, the company can focus on “higher-yielding growth opportunities” and reduce new capital requirements. NextEra Energy Partner’s recent distribution growth cut reflects its parent company, NEE’s growth struggles.

Shares of NEE have declined 15.8% over the past month and 27.5% over the past six months to close the last trading session at $56.46. Also, the stock has plunged 25.6% over the past year.

Here’s what could influence NEE’s performance in the upcoming months:

Mixed Financials  

NEE’s operating revenues increased 6.7% year-over-year to $7.17 billion for the third quarter ended September 30, 2023. But its operating income declined 1.4% from the year-ago value to $1.84 billion. The company’s adjusted EBITDA was $488 million, up 29.4% from the prior year’s quarter.

Furthermore, the company’s adjusted earnings came in at $1.92 billion and $0.94 per share, compared to $1.68 billion and $0.85 per share, respectively. Its total liabilities stood at $115.11 billion as of September 30, 2023, compared to $109.50 billion as of December 31, 2022.

Mixed Analyst Estimates

Analysts expect NEE’s revenue to increase 23.7% year-over-year to $25.92 billion for the fiscal year ending December 2023. The consensus earnings per share estimate of $3.13 for the current year indicates a 7.8% year-over-year decline. Moreover, the company has surpassed the consensus EPS estimates in each of the trailing four quarters.

However, the company’s revenue is expected to decline 8.3% year-over-year for the first quarter ending March 2024 and drop 3.7% year-over-year during the second quarter ending June 2024.

Mixed Profitability

NEE’s trailing-12-month gross profit margin and EBITDA margin of 61.90% and 55.58% are 59.3% and 70.3% higher than the industry averages of 38.86% and 32.65%, respectively. However, the stock’s trailing-12-month levered FCF margin of negative 70.58% compared to the industry average of negative 11.06%.

Further, the stock’s asset turnover ratio of 0.17x is 30.7% lower than the industry average of 0.24x.

Elevated Valuation

In terms of forward non-GAAP P/E, NEE is currently trading at 18.06x, 15.9% higher than the industry average of 15.59x. Likewise, the stock’s forward EV/Sales and Price/Sales of 7.50x and 4.41x are higher than the industry average of 3.53x and 1.79x, respectively.

Additionally, NEE’s forward Price/Book and Price/Cash Flow multiples of 2.28 and 11.07 compare unfavorably to the respective industry averages of 1.53 and 6.97.

POWR Ratings Reflect Uncertainty

NEE’s bleak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. The stock has a D grade for Value, consistent with its higher-than-industry valuation.

Within the Utilities - Domestic industry, NEE is ranked #45 out of 65 stocks.

Beyond what I have stated above, we have also given NEE grades for Stability, Quality, Sentiment, Growth, and Momentum. Get all NEE’s POWR Ratings here.

Bottom Line  

NEE’s revenue fell short of Wall Street estimates in the third quarter. While the utility company reaffirmed its earnings and dividend growth guidance through 2026, analysts seem bearish about its near-term prospects after its subsidiary, NextEra Energy Partners, announced cuts to its annual dividend growth outlook.

Moreover, concerns about higher interest rates continue to batter clean-energy stocks. NEE’s stock is currently trading below its 50-day and 200-day moving averages of $61.50 and $71.75, respectively, indicating a downtrend.

Given its stretched valuation, growing debt, and bleak near-term outlook, it could be wise to avoid NEE now.

Stocks to Consider Instead of NextEra Energy, Inc. (NEE)

Given its uncertain growth prospects, the odds of NEE outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these two B-rated (Buy) stocks from the Utilities - Domestic industry instead:

Brookfield Infrastructure Corp. (BIPC)

Genie Energy Ltd. (GNE)

To explore more A and B-rated utility stocks, click here.

What To Do Next?

Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:

10 Stocks to SELL NOW! >

NEE shares fell $0.11 (-0.19%) in premarket trading Thursday. Year-to-date, NEE has declined -31.74%, versus a 9.76% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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