Shares of Florida utility giant and renewable power developer NextEra Energy (NEE +0.35%) fell 5.5% on Tuesday.
Although utilities are supposed to be a stable and somewhat "boring" sector, they have been anything but over the past year. In NextEra's case, the stock swooned last year as long-term interest rates rose, but it recovered in early 2024 as the hypergrowth of artificial intelligence (AI) data centers spurred hope for outsized growth in electricity demand.
However, at today's Investor Day event, NextEra's mid-term guidance out to 2027 may have underwhelmed those hoping for a bigger AI tailwind.
NYSE: NEE
Key Data Points
Only 6% to 8% growth for several years
In today's presentation, NextEra gave a multiyear earnings-per-share (EPS) guidance going out to 2027:
|
NextEra Energy (NEE +0.35%) |
Earnings-Per-Share Guidance |
Growth at Midpoint |
|---|---|---|
|
2024 |
$3.23 to $3.43 |
5% |
|
2025 |
$3.45 to $3.70 |
7.4% |
|
2026 |
$3.63 to $4.00 |
6.7% |
|
2027 |
$3.85 to $4.32 |
7.1% |
Data source: NextEra Energy press release 6/11/24.
While the guidance over the next few years marks an acceleration over the 2024 growth rate, it apparently wasn't enough to satisfy the hopes of investors. Over the past 10 years, NextEra's adjusted (non-GAAP) EPS growth averaged 9.8%. So, this forecast marks a bit of a deceleration.
NextEra's stock had recovered some 30% in 2024, largely on the narrative that AI data centers, the onshoring of U.S. manufacturing, and the electrification of transportation would require a big step-change in demand for electricity going forward.
NextEra actually confirmed that expected increase in demand, forecasting a 38% increase in electricity demand in the U.S. between 2020 and 2040. That might not sound like much over the course of 20 years, but it's actually a huge step up from the mere 9% increase in demand from 2000 to 2020.
However, building all of that new power will also be expensive, especially as higher interest rates make those build-outs less affordable and therefore limit the ability to grow profits. NextEra forecasts spending between $53 billion and $59 billion cumulatively, on a net basis, on capital expenditures over the next four years. That averages out to about $14 billion per year, up from $9.3 billion last year.
NextEra is best-in-class but not exactly cheap
NextEra has become known as a great electric utility operator in Florida, a state with lots of growth. In addition, it has gotten kudos from investors for its leadership in renewable-energy development throughout the U.S.
However, at the share price of $76.97 to start the day, NextEra's stock was still trading at 18.8 times the 2027 EPS forecast at the midpoint. With interest rates higher now than they have been in the past, that multiple may have been a bit too high for investors with bigger growth expectations.
