NextEra Energy (NEE 1.22%) once again generated market-beating total returns last year. What made that impressive is that the S&P 500 was scorching hot, as it produced an eye-popping 31.5% total return. NextEra Energy, however, blew past that mark, as its total return came in at a lofty 42.7%, which is a monster gain for a utility.
Several factors helped the company produce such strong gains. Two noteworthy ones were that it was on track to generate high-end earnings growth and was locking up new renewable projects at the best rate in its history. Ideally, both trends continued during the fourth quarter, which is something investors should keep an eye on when it reports results later this week.
See if it generated high-end earnings growth
NextEra's outlook for 2019 estimated that it would generate between $8.00 to $8.50 per share of adjusted earnings, which would be about 6%-8% above 2018's level. However, thanks to its strong results through the third quarter ($6.94 per share of adjusted earnings), it expected its full-year number to be "at or near the top end" of its growth range, or roughly $8.32 per share. As such, the company should generate around $1.38 per share of adjusted earnings during the fourth quarter. Given that outlook, investors should see if the company delivered on that expectation.
One factor that could play a notable role in whether it achieves a high-end result is the impact of the wind on its renewable energy business. Wind resources across much of North America had been weaker than historical levels over the past year, which has negatively impacted renewable energy producers like NextEra Energy and its affiliate NextEra Energy Partners (NEP -0.56%). Wind conditions, however, were much more favorable during the third quarter, which helped boost the results of both companies during that period. According to U.S. government data, that trend continued during October, which bodes well for NextEra's ability to generate high-end results in 2019.
Check if its backlog continued to grow
NextEra's CFO Rebecca Kujawa noted on the company's third-quarter conference call that its "energy resources development team continues to capitalize on what we believe is the best renewables development environment in our history." She further pointed out that, "through the first three quarters of 2019, we have added nearly 4,200 MW to our renewables backlog, which now totals more than 12,300 MW." That's a massive backlog, which she put in context by saying that "it is larger than energy resources' operating renewables portfolio at the end of 2014, which took us more than 15 years to develop."
Given the strong market conditions for new renewable energy projects, investors should see if the company continued growing its backlog during the third quarter. One item to watch closely is the addition of new solar projects that include energy storage. Thanks to rapidly falling costs, the company has seen an uptick in customers seeking these types of projects.
Look for any changes to its 2020 outlook
Thanks to its large backlog of renewable projects, the acquisition of Gulf Power, and expansion opportunities within its two utilities, NextEra expects to keep growing over the next several years. In its view, its adjusted earnings per share will expand by 6% to 8% per year through 2021 from 2018's baseline level, plus some added accretion from the Gulf Power deal. That forecast implies that the company should earn between $8.70 to $9.20 per share in 2020, with $0.15 per share of that coming from cost savings at Gulf Power.
Investors should see if the company continues to stand by that outlook, especially the additional boost from its Gulf Power deal. Ideally, it will not only reaffirm that forecast but also project that results could be around the high-end of the range again this year. If that's not the case, investors should see what issues could cause the company to fall short this year.
Anticipating a strong finish
NextEra Energy entered the fourth quarter with the wind literally at its back. The company appeared poised to produce high-end results while also continuing to secure more renewable energy development projects. If that was the case, and the company expects more of the same in 2020, then that could give it the power to keep generating market-beating returns this year.