NextEra Energy (NEE 1.20%) isn't your average utility. It's growing much faster than its rivals, powered in part by its focus on investing in clean energy. That strategy paid big dividends last year, as NextEra Energy grew its adjusted earnings per share by more than 10%.
That's much faster than the initially anticipated 6% to 8% growth rate. That better-than-expected growth helped the utility deliver a 23% total return last year.
The company expects to continue growing at an above-average rate for the next few years. That could give it the fuel to keep producing outsized total returns for investors.
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Accelerating earnings growth
NextEra Energy recently updated investors on its long-term financial expectations. The utility company increased its outlook for the 2022 to 2023 time frame and extended its forecast through 2025.
This year, it expects to deliver adjusted earnings between $2.75 and $2.85 per share. That implies nearly 10% growth at the midpoint from last year's level of $2.55 per share. It's also an increase from its prior forecast of delivering $2.55 to $2.75 per share of earnings in 2022.
The company's stronger-than-expected 2021 earnings, combined with what it sees ahead for this year, also led it to boost 2023's forecast. It now expects to generate between $2.93 and $3.08 of adjusted earnings per share. That's 7% higher at the midpoint from this-year's forecast and up from its prior-guidance range of $2.77 to $2.97 per share.
NextEra also extended its earnings-growth forecast by two years, projecting 6% to 8% annual earnings-per-share growth from 2022's higher base through 2025. That puts it on pace to produce $3.35 to $3.60 of adjusted earnings per share in 2025. The company noted that it would be disappointed if it didn't deliver earnings growth at or near the top end of its range through 2025.
What's powering this forecast?
Two factors are helping drive NextEra's accelerated growth. First, its electric utility in Florida (FPL) is benefiting from several growth drivers:
- A steadily rising population as more people move into the state
- Investments in clean energy and grid modernization
- Its acquisition of Gulf Power
Of note, NextEra Energy is investing billions of dollars in building out the country's largest solar-energy program to provide more renewable power to Florida residents.
The other big growth driver is the company's energy-resources segment. This competitive energy business sells clean power to other utilities and large power users under long-term contracts.
NextEra is taking advantage of accelerating demand for renewable energy to secure a growing pipeline of development projects. It added 7.2 gigawatts (GW) of new renewable energy and battery-storage projects to its backlog last year -- including 1.5 GW in the fourth quarter -- growing its backlog by 25% in the past year. It now has over 16.6 GW of projects in the backlog that it expects to build by 2024, helping support its accelerating earnings growth. That's an enormous growth driver, considering that the energy-resource segment had 26 GW of total operating-generation capacity at the end of the third quarter.
There's also plenty of upside to this forecast. For example, NextEra has a long history of making value-enhancing acquisitions, including its 2019 purchase of Gulf Power and other assets from Southern Company. It has been on the hunt for deals in recent years, exploring several utility-acquisition opportunities. While those deals didn't come to fruition, NextEra could boost its growth rate by making another needle-moving deal.
Meanwhile, renewable energy development could further accelerate in the coming years, powered by new legislation. The recently passed $1 trillion infrastructure bill includes spending for clean-energy transmission, while other proposed legislation could also spur additional investment opportunities for NextEra Energy.
Not your typical utility stock
NextEra Energy is growing much faster than the average utility, powered by its investments in renewable energy. It expects to deliver faster growth over the next couple of years, with the potential for that to continue well into the future. That makes it a great stock to buy for the long term since it should continue generating strong total returns.
