Check out the latest NextEra Energy earnings call transcript.
NextEra Energy (NEE -1.86%) finished 2018 on a solid note, as its fourth-quarter results were right on target, enabling the utility to hit the midpoint of its full-year guidance range. That fine finish to the year is one of several reasons CEO James Robo and his team are bullish about the company's future. That was the main theme running through the comments on the accompanying conference call when he made five points:
1. They delivered outstanding results once again in 2018
Robo led off the call by saying:
2018 was a terrific year for both NextEra Energy and NextEra Energy Partners (NEP -1.92%). By successfully executing on our plans at both FPL and Energy Resources, NextEra Energy was able to achieve our target 2018 adjusted EPS of $7.70, an increase of approximately 15% over our 2017 results. Dating back to 2005, we've now delivered compound annual growth in adjusted EPS of over 8.5%, which is the highest among all top 10 power companies, who have achieved on average compound annual growth of roughly 3% over the same period.
NextEra Energy continued to generate above-average growth last year. What makes that so impressive is that it is the largest power company in the country. While large companies typically have trouble growing at high rates, that hasn't been an issue for NextEra.
2. They continue to richly reward investors
NextEra's fast-paced earnings growth is having a noticeable impact on shareholder returns, as Robo pointed out:
We delivered a total shareholder return of over 14% in 2018, outperforming the S&P 500 by nearly 19% and the S&P 500 Utilities Index by more than 10%. Since 2005, we have outperformed 86% of the S&P 500 and 100% of the other companies in the S&P 500 Utilities Index, while continuing to outperform both indices in terms of total shareholder return on a one-, three-, five-, seven-, and 10-year basis.
All too often management teams focus on growing the size of a company at the cost of creating value for investors. That has not been the case at NextEra Energy as its growth-focused investments continue to pay dividends for shareholders. The company has routinely outperformed not only its peers in the utility sector but also most stocks in the S&P 500 over the last decade and a half.
3. They had their best year ever for locking up renewable energy projects
NextEra Energy believes that it can maintain this outperformance because, for one reason, it continues to secure high-return expansion opportunities. Robo noted:
The Energy Resources team also continued its long track record of strong execution in 2018. The renewables origination success was particularly strong, as the team added approximately 6,500 megawatts, including storage and repowering to our backlog over the past year. This represents the most successful origination year in our history and is nearly twice as many megawatts as we originated in 2017, our prior record year.
Last year was the company's best for locking up new renewable energy development projects, which should help power growth for years to come. It leveraged its competitive strengths in development, customer relationships, purchasing power, and low capital costs to beat out competitors for new projects.
4. They're wildly bullish
NextEra Energy's success in locking up new projects leads Robo to believe that the company has one of the best opportunity sets in the sector.
"I remain as enthusiastic as ever about our long-term prospects," he said, "and based on the strength and diversity of our underlying businesses, I will be disappointed if we are not able to deliver financial results at or near the top end of our 6% to 8% compound annual growth rate range through 2021, plus the expected deal accretion from the Florida transactions, while at the same time maintaining our strong credit ratings."
Given the volume of projects the company has in its backlog, Robo firmly believes his company can continue delivering high-powered growth while maintaining a strong financial profile. That should give it the fuel to continue outperforming peers over the next few years.
5. There's plenty of capacity to continue growing
NextEra's financial strength is a crucial competitive advantage. It has a lower debt level and dividend payout ratio than most peers, which gives it the capacity to invest in more high-return expansion projects without stretching its finances.
Robo noted that even after spending $1 billion on the recently announced Trans Bay transmission acquisition, the company "expect[s] to maintain $4 billion to $6 billion of excess balance sheet capacity through 2021." He said that the company has several options for using those funds to create value for shareholders, including anticipating that it will use "use approximately $2 billion of this capacity in the near term to support additional regulated capital investments at FPL."
On top of that internal financing capacity, the company also has NextEra Energy Partners as a potential funding mechanism. It sold several assets to that entity in the past, including completing a $1.275 billion drop-down transaction of some wind and solar facilities last fall. Future sales to NextEra Energy Partners would not only help that entity achieve its ambitious dividend growth plan but would also give NextEra the funds to invest in additional high-return investments.
This utility has a bright future
NextEra Energy has a history of delivering above-average earnings growth, which has consistently powered market-beating total returns for its investors. Both trends appear likely to continue given that the company has an impressive pipeline of expansion projects and ample funding to finance these as well as other opportunities that could materialize in the coming years.