NextEra’s share price slumps despite positive Q4 earnings

Clean energy player NextEra recorded its best-ever year for renewables in 2022. However, despite posting healthy Q4 earnings, revenues missed expected growth. Its share price fell after the announcement, amid news that the CEO of subsidiary Florida Power & Light is retiring.

- NextEra posts Q4 earnings beat, but shares slump as revenues miss Wall Street expectations.

- “Record year of renewables” delivered, with wider renewable energy theme forecast to grow from 2024.

- Vanguard Utilities ETF gives exposure to NextEra stock.

NextEra Energy [NEE] announced mixed fourth-quarter (Q4) and full-year 2022 earnings on 25 June. Its share price tumbled in response, as news broke that the head of its key energy utility is retiring.

The Florida-based renewable power firm surpassed analyst expectations, recording earnings per share (EPS) up 14% and revenues up 22% year-over-year. In a statement, NextEra CEO John Ketchum praised the company’s “excellent financial and operational results”, highlighting that it outperformed the S&P 500 by almost 10% for the quarter.

Among this mainly positive news, however, the company announced Eric Silagy is retiring as CEO of Florida Power and Light [FPL], a utility firm owned by NextEra. Silagy is at the centre of an investigation into campaign donations.

NextEra’s share price reacted by closing down 8.7%. The stock had been flat in 2023, but is now down 8.4% since the start of the year.

Record renewables growth

NextEra posted Q4 earnings on a GAAP basis of $0.76 per share, up from $0.61 for the equivalent quarter in 2021 – a climb of 24.6% year-over-year. Adjusted earnings were $0.51 per share, up from $0.41 year-over-year. Revenues of $6.2bn jumped 22% from $5.05bn in 2021.

The results beat the Zacks consensus estimate for Q4 earnings of $0.50 per share, but fell short of the $6.6bn consensus revenue estimate by Refinitiv analysts. This is the fourth quarter in a row that NextEra has beaten analysts’ earnings expectations.

The company said it had enjoyed “a record year of renewables origination” in 2022, reporting that it signed “more than 8,000 megawatts of new projects”. It announced an extended growth outlook through to 2026, thanks to the potential of low-cost renewables. It added that it expected growth of 6-8% for 2025 and 2026 from its adjusted EPS range for 2024, which would be equivalent to between $3.45 and $3.70 for 2025, and $3.63 and $4 for 2026.

FPL is the biggest electric utility provider in the US with 5.8 million customer accounts, making its performance central to NextEra.

FPL logged 74,000 new accounts for Q4, alongside net income of $763m, or EPS of $0.38, a 23% leap from $620m year-over-year. Revenues jumped to $4.1bn, up 18% year-over-year from $3.4bn.

NextEra added: “FPL continues to focus on delivering an outstanding value proposition of low bills, high reliability, outstanding customer service and clean energy solutions for its customers.”

NextEra’s clean energy arm NextEra Energy Resources also jumped 17% year-over-year for Q4, seeing net income on a GAAP basis of $996m, or $0.50 per share.

At MarketBeat, NextEra is rated a ‘moderate buy’ by a consensus of 11 analysts. The price-to-earnings ratio for NEE stock sits at 39.39 according to Ycharts, suggesting it may be overvalued.

Clean energy boom forecast despite headwinds

While NextEra’s Q4 revenues missed estimates, the renewables theme will likely benefit from new US legislation pushing towards cleaner fuels, including wind and solar. The ongoing conflict between Russia and Ukraine has meant that oil prices have soared, with alternatives to fossil fuels now increasingly important.

The US Inflation Reduction Act, signed into law by President Joe Biden on 16 August 2022, is set to boost the sector, with $370bn earmarked for investment in clean energy and electric cars.

However, the clean energy theme suffered numerous headwinds in 2022, including soaring inflation, rising interest rates, high costs and supply-chain issues. According to a report by Deloitte, many constraints will spill into 2023. However, the report concluded that the overall picture looks positive as the trend gathers momentum, and is likely to “set the stage for faster growth in 2024”.

Longer term, NextEra Energy Resources appears poised to benefit as the biggest generator of wind power in the world, with 119 wind farms. “We anticipate a tremendous acceleration of growth in renewables and storage deployment across the US due in part to the IRA, particularly in the latter half of the decade," said Ketchum on the earnings call.

Funds in focus: Vanguard Utilities ETF

NextEra is currently the largest holding in the Virtus Reaves Utility ETF [UTES] with 20.60% of the portfolio as of 26 January. Year-to-date the fund is down by 2.4%, but up 7% over the past year.

Other funds that offer exposure to NextEra stock include the Utilities Select Sector SPDR Fund [XLU]. NextEra is again the largest holding, with 15.24% of the portfolio as of 25 January. The fund has followed a similar trend, falling 2.2% in the year so far, but rising 6.7% from its share price one year ago.      

The Vanguard Utilities ETF [VPU] is another fund that gives exposure to NextEra stock, which is the fund’s top holding as of 31 December, with a 14.28% weighting. In line with other funds tracking the theme, VPU is down 2% year-to-date, but up 6.3% across the last 12 months.