NextEra Energy Partners (NEP 1.71%) stock has lost about 60% of its value over the past year. That drove the renewable energy producer's dividend yield above 12%. Rising interest rates and their impact on its ability to grow have weighed heavily on the company.
That sell-off is a bit too much in the eyes of one Wall Street firm. Evercore ISI recently initiated coverage on the renewable energy producer, giving it an outperform rating and a $43 price target. That's over 50% above its recent price. Here's a look at what's driving this view and whether the analyst is overly optimistic.
NYSE: NEP
Key Data Points
NextEra Energy Partners' revamped strategy should pay dividends
In initiating coverage on NextEra Energy Partners, Evercore ISI highlighted the company's simplification strategy as a major catalyst. The clean energy infrastructure company unveiled plans to sell its natural gas pipeline assets to focus on renewable energy. It intends to use those proceeds to repay funding used to make acquisitions. The company also slowed its dividend growth target to 5%-8% annually with a goal of 6%.
Evercore believes that this strategy (which should reduce its cost of capital) and the predictable cash flow of its contracted renewable energy assets will enable the company to achieve its more manageable dividend growth target. It should also help the company to improve its financial profile.
Time to buy into the bullishness on NextEra Energy Partners?
NextEra Energy Partners stock cratered due to the impact surging interest rates had on its ability to refinance existing funding and secure new capital to finance acquisitions. That headwind should fade this year as the Federal Reserve lowers interest rates. Meanwhile, the company has taken steps to shore up its financing by selling off its gas pipeline assets. These moves should help lift the weight off its stock.
Given how far shares have fallen, a 50% recovery wouldn't be a surprise, especially considering the long-term demand growth ahead for renewables. While risks remain, NextEra Energy Partners is a high-upside stock that could deliver high-powered total returns if it can execute its strategy.
