Shares of the energy giant and developer of renewable energies from Florida NextEra Energy (NYSE: NO) fell 5.5 percent on Tuesday.
Although the utility industry is considered a stable and rather “boring” sector, it has been anything but that over the past year. In NextEra’s case, the stock plunged last year as long-term interest rates rose. However, it rebounded in early 2024 as the hypergrowth of artificial intelligence (AI) data centers raised hopes of disproportionate growth in electricity demand.
However, at today’s investor day, NextEra’s medium-term forecast through 2027 may have disappointed those who had hoped for more tailwind in the AI sector.
Only 6 to 8 percent growth for several years
In today’s presentation, NextEra provided a multi-year earnings per share (EPS) forecast through 2027:
|
NextEra Energy (NYSE: NO) |
Earnings per share forecast |
Growth on average |
|---|---|---|
|
2024 |
$3.23 to $3.43 |
5% |
|
2025 |
$3.45 to $3.70 |
7.4% |
|
2026 |
$3.63 to $4.00 |
6.7% |
|
2027 |
$3.85 to $4.32 |
7.1% |
Data source: NextEra Energy press release dated June 11, 2024.
While the forecast for the next few years represents an acceleration in the growth rate compared to 2024, it was apparently not enough to meet investors’ hopes. Over the past 10 years, NextEra’s adjusted (non-GAAP) EPS growth has averaged 9.8%, so this forecast represents a slight slowdown.
NextEra’s stock had recovered by about 30% by 2024, largely on the assumption that AI data centers, the relocation of manufacturing to the US and the electrification of transportation would require a significant shift in electricity demand in the future.
NextEra has actually confirmed this expected increase in demand, predicting that electricity demand in the U.S. will increase by 38% between 2020 and 2040. That may not sound like much over the course of 20 years, but it’s a huge step forward compared to the mere 9% increase in demand between 2000 and 2020.
But building all of these new power plants will also be expensive, as higher interest rates make expansion less affordable and limit the opportunity to increase profits. NextEra forecasts spending a total of between $53 billion and $59 billion on capital expenditures over the next four years. That’s an average of about $14 billion per year, compared to $9.3 billion last year.
NextEra is best in class, but not exactly cheap
NextEra has built a reputation as a great electric utility in Florida, a high-growth state, and has received praise from investors for its leadership in renewable energy development across the United States.
However, with a share price of $76.97 at the start of the day, NextEra’s stock was still trading at 18.8 times projected 2027 earnings. With interest rates higher now than in the past, that multiple may have been a bit high for investors with larger growth expectations.
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Billy Duberstein and/or his clients do not own any stocks mentioned. The Motley Fool owns a position in and recommends NextEra Energy. The Motley Fool has a disclosure policy.
Why NextEra Energy sank today was originally published by The Motley Fool