NextEra Energy is Likely to Beat Q2 Earnings: How to Play the Stock?
Second-quarter earnings estimates have been revised upward by 2% over the past 60 days. The bottom-line projection indicates an increase of 5.21% from the year-ago number. The Zacks Consensus Estimate for quarterly revenues indicates a year-over-year increase of 19.74%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
NEE Stock's Earnings Surprise History
NextEra's earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 3.58%.
What the Zacks Model Unveils
Our proven model predicts a likely earnings beat for NextEra this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the chances of an earnings beat. That is the case here, as you can see below.
You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Earnings ESP: NextEra has an Earnings ESP of +1.98%.
Zacks Rank: The company currently carries a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here.
Some companies in the same industry with the right combination of the two factors for an earnings surprise this season are Entergy Corporation ETR, Xcel Energy XEL and Vistra Corp. VST. ETR has an Earnings ESP of +5.26% and carries a Zacks Rank #2. XEL and VST have an Earnings ESP of +1.76% and +1.14%, respectively, and carry a Zacks Rank #3 each.
Factors Likely to Have Shaped NEE Stock's Q2 Earnings
NextEra's subsidiary, Florida Power & Light Company ('FPL'), is capitalizing on Florida's strengthening economy, which is driving increased demand as new customers are added each quarter. FPL continues to invest wisely in capital projects that benefit its customers while maintaining electricity bills nearly 40% below the national average. Lower electricity bill and high-quality services helps FPL attract additional consumers.
NextEra's subsidiary, FPL, has established a dominant presence in Florida's utility space. This position is largely underpinned by long-term franchise agreements with numerous municipalities that grant FPL exclusive rights to provide electric service within specific areas. These agreements typically span 30 years, offering a stable and predictable operating environment and the company is expected to gain from these existing contracts.
NextEra's Energy Resources unit is steadily expanding its portfolio to keep pace with growing customer demand. With over 28 gigawatts of signed contract backlog, the unit has strong visibility into the continued growth of its clean energy capacity. This expansion is primarily fueled by the addition of new renewable energy and energy storage projects.
NextEra is benefiting from growing energy demand driven by the rapid expansion of large data centers and increased power needs from oil and gas operations in the Permian Basin. At the same time, the company remains committed to deploying low-cost, quickly scalable renewable energy solutions that help keep electricity prices affordable for consumers.
Positioned strongly to leverage the anticipated surge in U.S. power demand, NextEra stands out due to its scale, deep industry expertise, and advancing technology. As its renewables and energy storage portfolio continues to grow, the company is increasingly well-equipped to meet future energy needs efficiently and sustainably.
NEE Stock's Price Performance
NEE shares have gained 13.9% in the past three months against the Zacks Utility – Electric Power industry's decline of 0.3%.
Image Source: Zacks Investment Research
NEE Stock Returns Better Than Its Industry
NextEra's trailing 12-month return on equity (ROE) is 12.06%, ahead of the industry average of 10.41%. ROE is a financial ratio that measures how well a company uses its shareholders' equity to generate profits. The company's current ROE indicates that it is using shareholders' funds more efficiently than its peers.
NextEra's Shares Trading at a Premium
The company is currently valued at a premium compared to its industry on a forward 12-month P/E basis. NextEra is trading at 19.8X compared with its industry's 14.77X.
Investment Thesis
NextEra continues to benefit from Florida's strengthening economy, which is driving customer growth and boosting demand for its services. Additionally, NextEra's ongoing investments in renewable energy projects and the expansion of battery storage capacity will further strengthen its ability to deliver clean, reliable power.
NextEra's effective expense management allows it to maintain utility bills significantly below the national average, making its services more attractive to customers and supporting steady customer growth.
A potential decline in interest rates could further benefit the capital-intensive utilities sector, including NextEra. However, given the stock's current premium valuation, holding existing positions may be the most prudent approach for now.
Wrapping Up
NextEra maintains steady performance, supported by increasing demand for clean energy across its service areas. The company is consistently expanding its clean energy portfolio to keep pace with this rising demand. Florida's strong economic growth continues to present new opportunities for expansion.
With this increasing demand and a steadily expanding customer base, maintaining an investment in NextEra appears to be a wise move, as the company is well-positioned to achieve further growth from its current levels.
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Xcel Energy Inc. (XEL): Free Stock Analysis Report
NextEra Energy, Inc. (NEE): Free Stock Analysis Report
Entergy Corporation (ETR): Free Stock Analysis Report
Vistra Corp. (VST): Free Stock Analysis Report
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