What happened
Shares of NextEra Energy (NEE -1.36%) crashed this week to three-year lows and were trading 15% lower through 1:30 p.m. ET Friday, according to data provided by S&P Global Market Intelligence.
The utility giant reaffirmed its long-term earnings and dividend growth guidance through 2026, but the markets and analysts are spooked after NextEra Energy's subsidiary gave investors a nasty shock this week.
So what
NextEra Energy Partners (NEP -0.89%), a wholly owned subsidiary of NextEra Energy, slashed its annual dividend growth outlook to 5% to 8% through at least 2026, with a target growth rate of 6%. Until last month, the company was confident of growing its dividend payout by 12% to 15% through at least 2026. Management said higher interest rates were making it difficult for the company to fund its growth plans, and it can focus on "higher-yielding growth opportunities" by reducing its dividend growth target.
So while it's easy to understand why NextEra Energy Partners stock tanked this week, what does this have to do with NextEra Energy? There could be three reasons why investors are worried.
First, NextEra Energy's management also manages the subsidiary, and investors perhaps believe the latter's dividend outlook cut is a reflection of NextEra Energy's growth struggles as well.
Second, NextEra Energy Partners typically acquires renewable energy assets from its parent to grow. This week, though, it said while it'll continue to acquire assets from NextEra Energy, it'll primarily focus on revamping its existing wind energy portfolio for growth. Investors in NextEra Energy believe this will mean fewer drop-down transactions for the company and will hurt its own financing plans.
Third, lower dividends from the subsidiary will also mean less extra income for NextEra Energy.
Now what
Several analysts cut their price targets on NextEra Energy stock this week, but I believe the sharp drop in the share price is unwarranted, especially after the two announcements from the company this week that makes the stock appealing right now.
First, NextEra Energy said it will sell its Florida natural gas assets to Chesapeake Utilities for $923 million in cash. It wants to redeploy capital into core business (which could mean its electric utility and renewable energy businesses), and that sounds like a smart move.
Second, NextEra Energy is sticking with its financial goals. It expects to earn at least $2.98 and $3.23 in adjusted earnings per share (EPS) in 2023 and 2024, respectively. The company's adjusted EPS was $2.90 per share last year. For 2025 and 2026, it sees 6% to 8% growth in adjusted EPS off its 2024 range.
NextEra Energy even stated, yet again, that it will be "disappointed" if it cannot deliver numbers at or near the "top end" of its guidance range through 2026. The company also expects to grow its dividend per share by around 10% annually through at least 2024.
