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NextEra Energy vs. Dominion Energy: Which Renewable Energy Stock to Choose?

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·6 min read
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As consumers in the United States are becoming more climate and environment conscious, they are also making more environmentally sound choices, and this includes going for renewable energy sources that could be naturally replenished.

This rising trend is indicated by the fact that last year, the consumption of renewable energy in the U.S. was up for the fifth year in a row and comprised 12% of the total energy consumption in the United States, according to a report from the U.S. Energy Information Administration (EIA).

Using the TipRanks Stock Comparison tool, let us compare two renewable energy companies, NextEra Energy and Dominion Energy, and see how Wall Street analysts feel about these stocks.

The author is neutral about both NextEra Energy and Dominion Energy.

NextEra Energy (NEE)

NextEra Energy is an electric power and infrastructure giant in North America and has two principal businesses, Florida Power and Light (FPL), which includes Gulf Power, and NEER. FPL is the largest electric utility in Florida state, while NEER is a generator of renewable energy.

In Q2, the company reported mixed results. The company posted revenues of $3.93 billion that lagged the consensus estimate of $4.97 billion. Adjusted earnings came in at $0.71 per share, beating analysts’ expectations of $0.68 per share. The company reported earnings of $0.65 per share in the prior-year period.

In FY21, NEE anticipates adjusted EPS to come in between $2.40 to $2.54 per share and expects EPS to grow between 6% and 8% for 2022 and 2023.

Jim Robo, Chairman and CEO of NextEra Energy said, “For the second quarter, NextEra Energy Resources continued to capitalize on the terrific market opportunity for low-cost renewables and storage and added approximately 1,840 megawatts to its backlog since the release of our first-quarter financial results in April.”

Robo also added that FPL plans to install more than 15 million solar panels by early next year, which would result in FPL completing more than half of its ’30-by-30’ plan. In 2019, NEE had announced that FPL would install more than 30 million solar panels by 2030.

This plan further got a boost last month, when FPL announced a four-year rate settlement agreement, developed jointly with Florida State’s consumer advocate, Florida Office of Public Counsel, and other parties. This agreement would result in ushering in new rates, starting from next year.

According to FPL, the agreement would result in residential customer bills remaining “well below the national average through 2025.” (See NextEra Energy stock chart on TipRanks)

The settlement agreement was viewed favorably by BMO Capital Markets analyst James M. Thalacker, who believes that the announcement “could help assuage the regulatory overhang as the strong signatory support would signal the company was able to strike an appropriate balance between environmental interests, customers, as well as shareholders.”

The analyst is bullish, with a Buy rating and a price target of $91 (8.4% upside) on the stock. Thalacker believes that the stock “warrants a premium valuation given its fundamental and thematic drivers, including one of the world’s largest renewable backlogs and favorable recovery of investments through regulatory recovery mechanisms.”

Turning to the rest of the Street, analysts are bullish about NextEra Energy, with a consensus of Strong Buy, based on 7 Buys and 2 Holds.

The average NextEra Energy price target of $89.22 implies an approximately 6.2% upside potential from current levels.

Dominion Energy (D)

Dominion Energy is a provider of natural gas and electricity and serves customers in the Rocky Mountain and eastern regions of the U.S. The company’s operating segments include Dominion Energy Virginia, Gas Distribution, Dominion Energy South Carolina, and Contracted Assets.

In Q2, the company’s results missed analysts’ estimates. Adjusted earnings per share (EPS) came in at $0.76, slightly missing the Street’s estimate of $0.77, but higher than the year-ago EPS of $0.73. Dominion's operating revenues declined 2.2% year-over-year to $3.04 billion, lower than analysts’ expectations of $3.76 billion.

In Q3, Dominion expects adjusted EPS to come in between $0.95 to $1.10. Furthermore, it expects adjusted EPS for FY21 to be between $3.70 and $4.

Even though the second quarter results came in below Street estimates, what makes the stock attractive, according to Evercore ISI analyst Durgesh Chopra, is Dominion’s appealing Environment and Social Governance (ESG) story.

The analyst is bullish on the stock, with a Buy rating and a price target of $82 (5.3% upside) on the stock.

Last year, the company unveiled a $32 billion growth capital plan over a five-year period. According to this plan, Dominion plans to invest approximately 82% of this capital in reducing emissions and enabling investments. (See Dominion Energy stock chart on TipRanks)

As a result of this plan, the company expects to grow its EPS by 6.5% every year through 2025, while dividends are projected to rise by 6% per year, targeting a dividend payout ratio of 65%. Dividend payout ratio indicates how much of a company’s net income is paid out as dividends.

The company’s management stated on its Q2 earnings call, “Taken together, Dominion Energy offers an approximately 10% total return premised on a pure-play, state-regulated utility profile, operating in premier regions of the country.”

Analyst Chopra considers this updated capital plan as “the largest regulated decarbonization initiative under our coverage universe.”

The analyst also views the sale of its gas transmission and storage assets as another big positive for the stock.

In July this year, Dominion announced the termination of its sale of Questar Pipelines to Berkshire Hathaway Energy, an affiliate of Berkshire Hathaway (BRK.A). Questar Pipelines is one of the company’s gas transmissions and storage assets.

The decision to terminate the sale was taken as “a result of ongoing uncertainty associated with achieving clearance from the Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.”

However, Dominion does intend to undertake a competitive process for the sale of Questar Pipeline and intends to close the sale by the end of this year.

The company added that this termination will have “no impact on the sale of gas transmission and storage assets to Berkshire Hathaway Energy completed in November” last year, which comprised around 80% of the original transaction value.

According to Chopra, the pipeline sale will allow “the company to generate 85-90% of its earnings from state regulated utilities” that could result in the “reduction in business risk and stronger balance sheet.”

Turning to the rest of the Street, analysts are cautiously optimistic about Dominion, with a consensus of Moderate Buy, based on 4 Buys and 3 Holds.

The average Dominion Energy price target of $84.86 implies an approximately 9% upside potential from current levels.

Bottom Line

While analysts are bullish about NEE, they are cautiously optimistic about Dominion Energy. However, based on the upside potential over the next 12 months, Dominion seems to be a better Buy.

Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article​.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.