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NextEra Arm to Redeem $950M Notes, Strengthen Balance Sheet

Zacks Equity Research
·3 mins read

NextEra Energy NEE announced its unit NextEra Energy Capital Holdings, Inc. will redeem two tranches of debentures on Oct 24, 2020. The combined principal amount of 5.125% Series I debentures due Nov 15, 2072 and 5% Series J debentures due Jan 15, 2073 is $950 million. The redemption will lower annual interest expenses of the company by $48.1 million.

NextEra has been managing its debt quite effectively. It has top-tier credit ratings, ranging from A- to Baa1, from all major rating agencies. The company’s times interest earned ratio at second quarter-end was 2.3, up from 2.1 at first quarter-end. The improving ratio indicates that the firm will be able to meet debt obligations in the near future without any difficulties.

Long-Term Plans

NextEra has well-chalked plans to invest in the range of $50-$55 billion in different projects that are extended from the last year through 2022. These investments will be directed to modernize and strengthen the company’s existing infrastructure, thereby enabling it to serve the expanding customer base more effectively.

The company expects to achieve the targeted compound annual earnings growth rate and is increasing financial expectations for 2021 and 2022, as well as extending long-term growth outlook through 2023, courtesy of persistent renewable asset additions to the generation portfolio and execution across all the businesses segments.

The regulated investment is helping it to generate adequate cash flow, which is utilized to strengthen the existing operations and increase shareholders’ value.

Focus on Clean Energy

We can notice a transition in the utility space, with operators gradually shifting from polluting sources and focusing on clean energy sources to generate electricity. NextEra has extensive plans to add renewable and clean energy sources to its generation portfolio and currently aims to reduce carbon dioxide emissions rate to 67% by 2025 from a 2005 base.

In addition, utilities like Duke Energy DUK, Xcel Energy XEL and DTE Energy DTE, among others, have chalked out plans to lower emissions from their electricity production process, aiming to become net-zero emission companies by 2050.

The U.S. Energy Information Administration (“EIA”) forecasts that U.S. energy-related carbon dioxide emissions, after decreasing 2.8% in 2019, will further decline 10.0% (512 million metric tons) in 2020. Per EIA, the decline in emissions is the result of less energy consumption owing to restrictions on the business and travel activity, along with slowing economic growth on account of COVID-19 mitigation efforts. We believe the induction of clean energy sources to the electricity generation process also contributed toward the decline in emissions.

Price Performance

Year to date, shares of NextEra have outperformed the industry.

Zacks Rank

NextEra currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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