Stocks Utilities

NextEra Energy Inc Valuation – February 2019 $NEE

Company Profile (excerpt from Reuters): NextEra Energy, Inc. (NEE), incorporated on September 10, 1984, is a holding company. The Company is an electric power companies in North America and, through its subsidiary NextEra Energy Resources, LLC (NEER) and its affiliated entities, is the generator of renewable energy from the wind and sun. NEE also owns and/or operates generation, transmission and distribution facilities to support its services to retail and wholesale customers, and has investments in gas infrastructure assets. Its segments include FPL and NEER. NEE also provides risk management services related to power and gas consumption related to its own generation assets and for a limited number of wholesale customers in selected markets. As of December 31, 2016, NEE’s business included approximately 45,900 megawatts (MW) of generating capacity with electric generation facilities located in 30 states in the United States, four provinces in Canada and in Spain; approximately 16% of the installed base of the United States wind power production capacity; approximately 11% of the installed base of the United States universal solar power production capacity; fleets of nuclear power stations in the United States, with eight reactors at five sites located in four states, representing approximately 6% of U.S. nuclear power electric generating capacity; more than 5.4 million retail and wholesale electric customer accounts, and approximately 14,700 people employed, primarily in the United States.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of NEE – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $89,957,748,174 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.36 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 141.32% Pass
6. Moderate PEmg Ratio PEmg < 20 18.88 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.42 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.36 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -2.40 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $9.97
MG Growth Estimate 13.09%
MG Value $345.61
Opinion Undervalued
MG Grade A
MG Value based on 3% Growth $144.50
MG Value based on 0% Growth $84.71
Market Implied Growth Rate 5.19%
Current Price $188.13
% of Intrinsic Value 54.43%

NextEra Energy Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $5.32 in 2015 to an estimated $9.97 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.19% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into NextEra Energy Inc revealed the company was trading above its Graham Number of $115.16. The company pays a dividend of $4.44 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 18.88, which was below the industry average of 22.79, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-124.47.

NextEra Energy Inc fares extremely well in the ModernGraham grading system, scoring an A.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$124.47
Graham Number $115.16
PEmg 18.88
Current Ratio 0.36
PB Ratio 2.42
Current Dividend $4.44
Dividend Yield 2.36%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $6,393,000,000
Total Current Liabilities $17,563,000,000
Long-Term Debt $26,782,000,000
Total Assets $103,702,000,000
Intangible Assets $1,599,000,000
Total Liabilities $66,289,000,000
Shares Outstanding (Diluted Average) 481,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.25
Dec2018 $13.88
Dec2017 $11.39
Dec2016 $6.24
Dec2015 $6.06
Dec2014 $5.60
Dec2013 $4.47
Dec2012 $4.56
Dec2011 $4.59
Dec2010 $4.74
Dec2009 $3.97
Dec2008 $4.07
Dec2007 $3.27
Dec2006 $3.23
Dec2005 $2.34
Dec2004 $1.24
Dec2003 $1.27
Dec2002 $0.69
Dec2001 $1.16
Dec2000 $2.07
Dec1999 $2.04

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $9.97
Dec2018 $10.09
Dec2017 $7.72
Dec2016 $5.72
Dec2015 $5.32
Dec2014 $4.90
Dec2013 $4.52
Dec2012 $4.49
Dec2011 $4.35
Dec2010 $4.10
Dec2009 $3.65
Dec2008 $3.27
Dec2007 $2.67
Dec2006 $2.16
Dec2005 $1.53
Dec2004 $1.18
Dec2003 $1.25

Recommended Reading:

Other ModernGraham posts about the company

NextEra Energy Inc Valuation – May 2018 $NEE
NextEra Energy Inc Valuation – December 2016 $NEE
NextEra Energy Inc. Analysis – August 2015 Update $NEE
47 Companies in the Spotlight This Week – 5/16/15
NextEra Energy Inc. Quarterly Valuation – May 2015 $NEE

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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.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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