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NextEra's Valuation Is A Bit Too Rich

Mar. 01, 2021 8:39 PM ETNextEra Energy, Inc. (NEE)8 Comments
Geoff Considine profile picture
Geoff Considine


  • NextEra is an undisputed leader in utility-scale clean energy.
  • The stock's valuation is closer to a big tech firm than a utility.
  • The Wall Street analysts are bullish.
  • The options market is sending a modestly bearish signal.
  • The current stock price is too high for me to be bullish.

Utilities are increasingly seen as a way to participate in clean energy in addition to their more traditional lines of business. NextEra Energy (NYSE:NEE) is a leader among utilities in building out clean energy assets, claiming to be the world’s largest producer of wind and solar energy.

Source: NextEra Energy, Inc.

NEE has been growing its clean energy business line for a long time (including back when it was called Florida Power and Light) and the market has valued these efforts at a premium. The trailing total returns for NEE make it very clear that this is not your garden-variety utility. The fifteen-year annualized total return for NEE, for example, is 14.97%, as compared to 1.96% for the electric utilities sector and 10.06% for the U.S. equity market as a whole.

Trailing total returns for NEE, utilities sector, and total U.S. stock market (Source: Morningstar)

There is something a bit unnerving when a large utility has forward P/E comparable to a large tech firm. As I write this, NEE has a forward P/E of 29.25 and Alphabet (GOOG) (GOOGL) has a forward P/E of 29.46. Even though the market is getting more comfortable with relatively high valuations for utilities, NEE still looks unusually expensive. Seeking Alpha’s quantitative value grade for NEE is an F. It is also notable, however, that NEE has the highest grade among its peers for growth and momentum.

Seeking Alpha Quantitative Factor Grades for NEE and peers (Source: Seeking Alpha)

Wall Street Analyst Consensus Outlook

The view of the Wall Street analysts who follow NEE is consistently bullish, with a twelve-month price target of $91, almost 19% above the current price. Even the lowest analyst price target is slightly above the current price. Remarkably, the most optimistic of the analysts has a price target of $100, more than 30% above the current price.

This article was written by

Geoff Considine profile picture
Geoff has worked in quantitative finance for more than twenty years. Before entering finance, Geoff was a research scientist for NASA. Geoff holds a PhD in Atmospheric Science from the University of Colorado - Boulder and a BS in Physics from Georgia Tech. Neither Geoff Considine nor Quantext (Geoff's company) are investment advisors. Nothing in any commentary here on Seeking Alpha or elsewhere shall be regarded as advice.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (8)

i buy nee on moex.ru in russia. in rubles
I’ve gotten rich owning NEE for the 15 years. Largest holding. Bought BEP too.
This stock is going higher.
People have been saying they're too rich for years. I think the easy money is gone but they're still the best. If/when there is a market correction they should become a screaming buy.
After the recent pullback of ~10%, I think NEE looks much better to add
farmed out profile picture
@Geoff Considine didn't agree with you on AFL being overpriced, but I agree with you on NEE being a bit too rich here.
Backed up the truck last week for low 70's buys. I'm fine with being patient with the best utility available, which sees the real future in renewables.
WarrenJF profile picture
@user 28897925 I've been waiting for the same drop. (I own ENB and AY) I bought some at just below 76 and added at 73 & change; then sold half at high point today to lock in at least a small gain. I'll either just ride this small position if it keeps climbing, or load up the truck if the price breaks 70 during the next selloff. I'd feel real comfortable if I could get the average acquisition price into the high 60s.

My solution to locking in decent yield here was to sell a June 18 put at 65 for about $194. Since I'm holding a small position right now I'd welcome the opportunity to buy at $65.

I'm kind of uncomfortable with NEE's valuation even during this dip, because, despite a well-deserved price premium, it's still a regulated utility, not a tech company with 50% YOY growth

But, at the same time, I feel this is a company with the capability of dominating renewable infrastructure in the South and Southwest over time because they're starting from such a position of strength in terms of wind and solar.

I believe they're already the #2 wind generated electricity company in TX, with over 4.3GW currently in operation and another 1.8GW under construction or pre-construction energyacuity.com/... They're in 37 states already. I think they've got their foot a little further in the door than anyone else, like getting a .5 sec advantage for a 100m dash.

On the downside they're history is fraught with failed M&A attempts, more than any utility company I've researched. This has included rejected (or legislatively administratively axed mergers or acquisitions in Spain, MD, TX, SC, and Hawaii. There's also been some litigation, though nothing particularly scary.

On the plus side for NEE––the Gulf Power merger was finally approved in 2019 I think. And through NextEra Resources (NEER), they expanded into a multitude of different states via solar and wind projects.
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