On Sep 19, 2013 we maintained our Neutral recommendation on NextEra Energy Inc. (NEE). The Florida-based utility service provider currently carries a Zacks Rank #3 (Hold).
Why the Reiteration?
Asset additions and higher demand from an expanded customer base led the company to deliver positive earnings surprise in the second quarter of 2013. The reiteration, however, takes into consideration the tariff headwind experienced by the company’s solar project in Spain. In addition, continued decline in average power prices are limiting its growth opportunities.
NextEra Energy’s multiple renewable initiatives along with sizeable long-term wind and solar contracts will propel future growth. The company recently expanded its operations to Hawaii to develop underground cable infrastructure connecting the grids between the islands of Oahu, Maui and the Big Island.
NextEra Energy is also exploring options to increase its renewable portfolio in Hawaii. Furthermore, visible signs of recovery in the Florida housing and construction market will help NextEra Energy to achieve its targeted compound annual earnings per share growth rate of 5% to 7% over the period 2012 to 2016.
In addition, NextEra Energy's strong liquidity position will finance its ongoing infrastructure development initiatives as well as capture high-return assets.
Nonetheless, the threat of operational disruption from severe storms might put the company’s operations at risk. Also, stringent pro-environment regulations might add to cost pressure thereby impacting margins.
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