NextEra Energy (NEE) Investment Memo
Meera Equities 08.17.2020
Investment Thesis
In an effort to curb climate change, society at large will have to move away from fossil fuels. NextEra Energy is a leading renewable energy company and utility that has already made tremendous strides building out the necessary infrastructure to support the next generation of renewable energy.
Company Description
NextEra Energy, Inc. is an electric power and energy infrastructure company. It operates through the following segments: FPL & NEER. The FPL segment engages primarily in the generation, transmission, distribution, and sale of electric energy in Florida. The NEER segment produces electricity from clean and renewable sources, including wind and solar.
Qualitative
Overview
Sector: Utilities
Industry: Electric Utilities
Competitors: PCG, EXC, ETR, PPL, DUK, SO, XEL, D, FE, AEP
Strategy
Delivering outstanding customer value by investing in better infrastructure.
Capitalize on the outstanding renewables development environment (added ~1,600 MW to backlog).
Maintain / Strengthen balance sheet and access to capital.
Business Model: Utility & Renewable Energy Generation
NextEra owns two regulated utilities in Florida that benefit from a strong economy and growing demand. These utilities are consistent sources of re-occurring cashflow.
NextEra Energy Resources is one of the largest renewable power companies in the world. Energy Resources builds solar and wind assets and sells power.
Market: Service Territories & Wholesale Power Customers
Florida’s population is growing at 1.3% per year (~2x’s the national average).
“Spending on renewables is forecast to total about $14 billion across the RRA coverage universe over the three years 2019 to 2021, accounting for 11% of total industry spending.”
EIA forecasts renewable energy will the fastest-growing source of electricity generation in 2020 in the United States.
Moat: Service Territory Monopoles
NextEra is allowed to operate as the monopoly utility provider in certain areas with state contracts.
The state regulates the price NextEra can sell electricity for.
X-Factor: Renewable Energy Generation & Regulation
NextEra owns some of the country’s most desirable wind and solar generation sites.
As a utility, a core component of growth is to spend money on the company’s assets and expand its footprint.
Florida’s energy regulations & legislative support have been very beneficial to NextEra energy which has helped the company grow. The regulation will vary as the company & industry grow.
Cash Cow: Florida Power & Light
~$12B in operating revenue servicing over 5M customers.
FP&L is the largest electricity provider in the state of Florida, and one of the largest utilities in the country.
Growth Opportunities: Capital Improvements, Innovation, & Acquisitions
Quantitative
Risks
Ability to achieve regulatory rate adjustments that allow the company to compete and grow.
Electricity is a volatile commodity and pricing power can vary.
NextEra operates in a very capital-intensive industry; high borrowing costs could be a barrier to future investment.
Learn Something
Company Materials: 10-K | Annual Meeting Presentation |Investor Relations
S&P Global Market Intelligence: “The 2020 US Renewable Energy Outlook”
University of Michigan Center for Sustainable Systems: “U.S. Renewable Energy Fact Sheet”
Enterprise Multiple (EV/EBITDA): A ratio used to determine the value of a company. Used to determine whether a company is undervalued or overvalued compared to peers.