Any list of the best long-term investments since the turn of the century would include NextEra Energy (NYSE:NEE). The stock has delivered a total return (stock performance plus dividends) of 1,590% in that span, which smokes the total return of the S&P 500 that registers at "only" 175%. The sizzling ascension, owing to an aggressive acquisition strategy and betting correctly on the rise of wind power, has converted the business from just another industry player to the world's largest publicly traded utility by market cap.

That's all well and good, but investors on the outside looking in probably want to know where the business is headed, not only where it's been. After all, the company is currently valued at $90 billion. How much more can NextEra Energy possibly grow -- and is this renewable energy stock a buy?

Wind turbines along a road

Image source: Getty Images.

The business

Although NextEra Energy typically refers to itself as a utility, it's technically a holding company. It generates revenue and income from three core holdings:   

  1. Florida Power and Light (FPL): As the largest electric utility in the Sunshine State, FPL generates electricity from nuclear (24% of its generation) and natural gas (73% of its generation), then distributes it to residential and commercial customers. Its "30 by 30" strategy will see FPL build 30 million solar panels by 2030. That will equate to 10,000 megawatts of solar power capacity, compared to just 2,159 megawatts of solar in all of Florida today.
  2. NextEra Energy Resources (NEER): The power-generation arm of NextEra Energy is the world's largest supplier of wind and solar electricity and the fourth-largest capital investor in the United States. In 2018, the generation mix comprised 59% wind, 33% nuclear, 7% solar, and 1% natural gas. It also owns natural gas pipelines with nearly 8 billion cubic feet per day (Bcf/d) of transport capacity.
  3. Gulf Power and Florida City Gas: NextEra Energy acquired the Florida-based electric and natural gas utilities, respectively, from Southern Company for $6.4 billion. The transaction for Gulf Power closed on the first day of 2019, while Florida City Gas has operated under FPL since last July. The parent's utilities serve 51% of the state's population.

In total, NextEra Energy has roughly $104 billion in assets, including power generation capacity of 24,000 megawatts at FPL and 23,000 megawatts at NEER (and that's about to grow -- a lot). It boasts the seventh-lowest carbon emissions per megawatt-hour of electricity produced among the nation's top 50 power producers. And management thinks it can continue creating tremendous value for shareholders in the years ahead.

By the numbers

NextEra Energy turned in a record year of operations in 2018. Here's how the numbers compare to those from 2017:  

Metric

2018

2017

Change (YOY)

Operating revenue

$16.7 billion

$17.2 billion

(3%)

FPL adjusted EPS

$4.55

$4.09

11%

NEER adjusted EPS

$3.05

$2.60

17%

Total adjusted EPS

$7.70

$6.70

15%

Operating cash flow

$6.59 billion

$6.46 billion

2%

Assets

$103.7 billion

$97.9 billion

6%

Data source: SEC filing. YOY = year over year.

While total revenue dropped nearly $500 million in the most recent year-over-year comparison, the details show there's not much to worry about. FPL saw a year-over-year decline in operating revenue of $110 million, primarily due to storm-related losses from an above-average hurricane season.

Meanwhile, NextEra Energy estimates that operating revenue for NEER was reduced by $718 million in 2018 due to the deconsolidation of its energy yieldco, NextEra Renewable Partners, which was already a separate publicly traded company. The parent and NEER still work closely with the partnership by selling it renewable energy assets and natural gas pipelines. 

Man in a shirt and tie looking through binoculars

Image source: Getty Images.

Looking ahead

Management expects growth to resume for both FPL and NEER in the year and years ahead. The electric utility will see revenue and earnings trend predictably upward as it grows its rate base (utilities earn rate increases from regulators by investing in infrastructure) through capital expenditures, which reached $5.1 billion in 2018. That's a sharp increase from capex of just $3.2 billion in 2014. NEER capex soared to a record $7.1 billion last year, up from just $3.7 billion in 2014, as it races to meet insatiable demand for wind and solar projects across the United States. 

A steady stream of investments -- made possible by NextEra Energy's massive size -- should provide ample growth for individual investors in the next several years. Management is targeting annual adjusted EPS growth of 7% through 2021, which would equate to between $9.40 and $9.95 three years from now. That includes per-share contributions of $0.15 and $0.20 in 2020 and 2021 from the recently acquired Florida utilities Gulf Power and Florida City Gas. 

NextEra Energy thinks operating cash flow will grow in lockstep with adjusted EPS, which will provide even more capital for expanding the asset base. Meanwhile, the annual dividend per share is expected to grow 13% per year from a base of $3.93 in 2017. Much of that increase has already been realized, as the dividend currently pays shareholders $5.00 per share, but the math shows it could grow to $5.67 by the end of 2020 -- a healthy 13% rise from current levels.

A green globe sitting on the grass

Image source: Getty Images.

NextEra Energy stock can be a portfolio foundation

Investors surely cannot expect NextEra Energy stock to grow another 1,590% in the next two decades, but the business is well-positioned to continue growing at a healthy clip for the foreseeable future. It trades at just 13.5 times trailing earnings and 20.7 times future earnings, both more than reasonable for a utility stock with predictable growth. That makes this leading renewable energy stock a buy. 

Investors who buy the stock today will get a market-beating dividend and own the world's largest renewable energy generator. That's not to be overlooked, especially considering wind, solar, and energy storage are just setting out on their respective exponential growth curves. Case in point: NEER aims to have a nation-spanning renewable energy backlog of a staggering 40,000 megawatts in place by 2020. That explains the company's $7.1 billion capex last year, and it may just hint at the growth ahead. Simply put, NextEra Energy stock is a buy.