NextEra Energy Eyes Green Investment Opportunities Driven By Federal Tax Credits

Shares of NextEra Energy (NEE, Neutral) dropped by 1% after company declared earnings of $1.43 per for the second quarter, compared with $1.44 per share as consensus expectations. Management tightened its full-year 2014 EPS outlook between $5.15 and $5.35 range from $5.05 to $5.45, reducing at high-end; and reiterated its estimates of 5-7 percent EPS expansion through 2016, signifying an EPS outlook of $5.50 to $6 range in 2016.

Nearly a month ago, firm completed the NextEra Energy Partners (NEP) IPO. This segment’s performance remained shoulder to shoulder with company’s expectations of 12 months EBITDA (between $245 million to $255 million) and cash on hand (between $85 million and $90 million). NEP’s almost all projects are fully functional, after recent completion of Bluewater Wind Energy Center.

Energy Resources added $0.48 EPS versus $0.56 in the previous year. It gained from investments in its renewable segment, sales of assets and planned activities within customer supply and business at large. However, the gain was counterbalanced by capital expenses on NEP’s IPO and Canadian income taxation.

Florida Power & Light, which contributes the major portion of NEE’s revenue, added $0.96 EPS for second quarter against $0.92 year-over-year. Total earnings from Florida Power & Light increased 8.2 percent year over year to $423 million driven by ongoing investment in the business. Total capital investments heightened rate remain 6.2 percent. The capital investments endured to lead its growth, with rest Port Everglades upgrade project likely to be closed in 2016.

In terms of second quarter profit, company’s competitive energy unit added $81 million against profit of $229 million in Q213. This comprises of minus effect of $0.15/share expenditure liable for launch of NextEra Energy Partners. NEER has gained lot from federal tax benefits for renewable energy and company is planning to take ongoing advantages of this incentive by developing extra solar and wind capacity by 2015. However, economical breath of solar and wind projects solely bank on government’s renewable tax policies, which are not always promised for long-run.

On basis of 2Q results and company’s planned investments, we reiterate rating to ‘Neutral’ and raise price target to $102 from $94. The stock is trading at $98.40 which is 21 times our 2014 EPS estimate and 18 times our 2015 EPS estimate.


Jennifer McKinney, CFA, is an equity analyst for The Downtown Leader. If you have a great story idea for Jennifer McKinney, you can write at [ ].