Will earnings help the NextEra Energy share price beat the market?

The energy and utilities sectors have had a positive year compared with the wider market, but there are signs that the boom is over as a recession looms. Despite the rush for defensive sectors, NextEra Energy’s stock has slumped so far this year. Can the energy firm improve its outlook as its second-quarter results land on 22 July?

For much of 2022, energy stocks have been the one sector beating the market. While the NextEra Energy [NEE] share price has been the exception to this trend, the stock could see a revival when it announces its second-quarter earnings report, before markets open on 22 July.

According to a consensus of analysts polled by Zacks Investment Research, the US utility giant is expected to report earnings per share of $0.74, up 4.2% year-over-year, while revenues are forecast at $5.7bn, up 44.5%.

In June, NextEra released updates for its predicted adjusted earnings per share at its investor conference. For 2022, it forecasted a range of between $2.80 and $2.90, while for 2023 it’s set to be between $3.23 and $3.43. This would represent a jump of up to 25.5% and 44.5% on its 2021 EPS of $2.31 per share.

As one of the US’s biggest utility companies and owner of Florida Power and Light Company, which supplies power to around 12 million residents in the state, NextEra Energy’s earnings could be a bellwether for the industry. As well as natural gas and infrastructure, it owns wind and solar projects, with a focus on clean energy.

NextEra sells gas pipeline

Its Q2 earnings might be positively affected by its sale of its Monument 156-mile gas pipeline for $203m to Arm Holdings in April. John Ketchum, CEO of the firm, said: “With the sale of this pipeline asset, at an accretive EBITDA multiple, we expect to redeploy the transaction proceeds to acquire higher-yielding renewable assets.” He said the sale would help the company with its “long-term growth plans” and “clean energy transformation”, with “growth prospects that remain as strong as ever”.

While the energy sector has been a rare stock market winner in 2022 (as of early July, energy was the only one of 11S&P 500 sectors seeing positive gains), there are recent signs this trend is about to reverse amid fears of a global recession.

The utilities sector, which NextEra falls into, has also beaten the market, falling overall 3.9% year-to-date to 19 July, beating the S&P 500’s fall of 19.6%. However, year-to-date the NextEra share price is down 16%.

Can NextEra repeat its last earnings surprise?

In its Q1 earnings report in April, NextEra delivered a surprise of 7.2% when it announced earnings per share of $0.74 as opposed to the $0.69 predicted by analysts. This was also a year-over-year rise of 10.4% from the $0.67 delivered in the equivalent 2021 period.

However, the company also reported revenue of $2.9bn for Q1, compared with Zacks analysts’ predictions of $5.2bn — a 44% shortfall.

At the earnings, CFO Kirk Crews noted how the company had made Fortune magazine’s World’s Most Admired Companies list for the 15th time. He also pointed out that “FPL [Florida Power & Light] owns and operates more than 3,600 megawatts of solar, which is the largest solar portfolio of any utility in the country”.

Mostly positive analyst outlook

NextEra looks well positioned to profit from the energy sector’s shift to greener solutions.

With full-scale recession potentially looming, it is seeing a muted but mainly positive response from analysts. The 12-month price target on the stock was reduced by Barclays analysts this week from $90 to $86, though this would still indicate a possible upside of 8.9% from the stock’s closing price on 19 July of $78.93. KeyCorp has slightly reduced its target from $89 to $88, while Credit Suisse maintained the stock’s ‘outperform’ rating in June.

NextEra’s prospects look positive according to CNN, where 18 analysts are offering a median target forecast of $89, a 12.7% upside from its last close. Of 20 analysts offering a rating, the consensus is to ‘buy’ the stock.