Analysts seem to love utility giant NextEra Energy (NEE +0.61%). Of the 15 analysts surveyed by Refinitiv in May, all but two rated the stock as a "buy" or "strong buy." The average 12-month price target reflects an upside potential of nearly 27%.
It's a different story for NextEra Energy's offspring, limited partnership (LP) NextEra Energy Partners (NEP +0.76%). The LP pays a much higher dividend yield of over 5.7% compared to NextEra Energy's yield of nearly 2.6%.
But there isn't anywhere close to a consensus about NextEra Energy Partners. Why is Wall Street so polarized over this high-yield dividend stock?
NYSE: NEP
Key Data Points
Some strong support
Four of the 13 analysts surveyed by Refinitiv in May think that NextEra Energy Partners is a "strong buy." Another three recommend buying the stock.
These bullish analysts no doubt like the fact that NextEra Energy Partners is now fully focused on renewable energy. The company announced earlier this month that it plans to sell its natural gas pipeline assets.
Renewable energy stocks, in general, enjoy strong support on Wall Street these days. And for good reason. The shift from fossil fuels to renewable energy is a must for countries and corporations to achieve their carbon emissions reduction goals.
Those analysts with positive recommendations about NextEra Energy Partners are decidedly upbeat. The average 12-month price target for the stock is 31% higher than the current share price. The highest price target is a whopping 53% higher.
Not all analysts are huge fans
However, not all of the analysts on Wall Street are such huge fans of NextEra Energy Partners right now. Five of the analysts surveyed by Refinitiv recommend holding the stock with one rating it as an "underperform."
The most pessimistic 12-month price target for the stock is 10% below the current share price. Why such negativity? NextEra Energy Partners' valuation.
Shares trade at nearly 45 times expected earnings. By comparison, the LP's parent NextEra Energy looks downright cheap with a forward price-to-earnings multiple of 25.
Even analysts who aren't overly critical of NextEra Energy Partners think its valuation could keep it from outperforming the overall market. For example, Raymond James likes that the LP is now a pure-play renewable energy provider but believes the stock is fairly valued.
Who's right?
Which side of Wall Street has the right perspective about NextEra Energy Partners? Sorry to be wishy-washy, but I think both make good points.
Starting with the more pessimistic viewpoint, I agree that the LP's shares are priced at a premium. My take is that the price targets reflecting gains of more than 30% over the next 12 months are unlikely to be hit.
On the other hand, I fully agree with the optimism about the future of NextEra Energy Partners with its 100% focus on renewable energy. The company should be able to at least double its renewable capacity over the next three years or so.
I think that income investors should give serious consideration to buying the stock. It offers an exceptionally attractive dividend that's likely to continue growing in the future. Even if the stock doesn't beat the market, it should hold up relatively well.
Growth investors will probably find other stocks that are more to their liking. But I still wouldn't discount the potential for NextEra Energy Partners to deliver market-beating total returns over the long term.
