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NextEra Energy Inc. Quarterly Valuation – May 2015 $NEE

NEXTERA ENERGY, INC. LOGOBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – April 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how NextEra Energy Inc. (NEE) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Nextera Energy, Inc. (NEE) conducts its operations principally through two wholly owned subsidiaries, Florida Power & Light Company (FPL) and NextEra Energy Resources, LLC (NEER). NextEra Energy Capital Holdings, Inc. (NEECH), another wholly-owned subsidiary of NEE, owns and provides funding for NEER’s and NEE’s other operating subsidiaries, other than FPL and its subsidiaries. The Company is an electric power company in North America, with approximately 42,500 MW of generating capacity in 26 states in the United States and 4 provinces in Canada, and employing approximately 13,900. NEE provides retail and wholesale electric services to nearly 5 million customers and owns generation, transmission and distribution facilities to support its services. NEE is the generator in North America of renewable energy from the wind and sun.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 -FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $100.20
MG Value $71.65
MG Opinion Overvalued
Value Based on 3% Growth $74.50
Value Based on 0% Growth $43.67
Market Implied Growth Rate 5.50%
Net Current Asset Value (NCAV) -$107.84
PEmg 19.50
Current Ratio 0.67
PB Ratio 2.22

Balance Sheet – March 2015

Current Assets $6,297,000,000
Current Liabilities $9,386,000,000
Total Debt $24,264,000,000
Total Assets $74,929,000,000
Intangible Assets $0
Total Liabilities $54,694,000,000
Outstanding Shares 448,800,000

Earnings Per Share

2015 (estimate) $5.51
2014 $5.60
2013 $4.47
2012 $4.56
2011 $4.59
2010 $4.74
2009 $3.97
2008 $4.07
2007 $3.27
2006 $3.23
2005 $2.34

Earnings Per Share – ModernGraham

2015 (estimate) $5.14
2014 $4.90
2013 $4.52
2012 $4.49
2011 $4.35
2010 $4.10

Dividend History

Conclusion:

NextEra Energy Inc. is suitable for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, and while the Enterprising Investor is concerned by the level of debt relative to the current assets, the Enterprising Investor overlooks those concerns as the company qualifies for the more conservative Defensive Investor.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $4.35 in 2011 to an estimated $5.14 for 2015.  This level of demonstrated growth does not support the market’s implied estimate of 5.5% annual earnings growth over the next 7-10 years and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value falling below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on NextEra Energy Inc. (NEE)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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