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Tuesday July 20, 2010
NextEra Energy (NEE): A 'bargain' in utilities
by Vita Nelson, editor MoneyPaper's Direct Investing  Our latest "Bargain Stock" feature is NextEra Energy (NEE), which changes its name in June from the FPL Group.The company changed its name to "better reflect the company's scale as one of the largest and cleanest energy providers in the nation." Its regulated utility, Florida Power & Light, provides electricity to 4.4 million customers. Its unregulated unit sells power across the United States. 
Over a third of this unit's operation sources electric power using windmills, many of which are located in high-wind areas, such as the Texas panhandle. NextEra generates about 46% of FPL's operating profits through operations in 28 states and Canada and that proportion is likely to provide the most growth -- hence the name change. Analysts' consensus estimates call for NEE to earn about $4.34 per share this year, and $4.50 in 2011, compared with $4.05 last year. The company's primary utility enjoys continued growth from the increasing number of retirees who are moving to Florida (especially the coastal areas) in large numbers, and increase of about 2% per year. Recent earnings were hit by a difficult rate order this year form the Florida utility commission, which agreed to only part of its rate increase request, with no increase next year. Nonetheless, management was able to increase the dividend for the 16th consecutive years, largely due to the earnings of NextEra Energy,, the unregulated unit which is not subject to utility commission oversight. Despite the somewhat hostile regulatory climate, the firm enjoys returns on invested capital that have historically exceeded or equaled its cost of capital, a better-than-average performance than the utility sector overall. The issue has a $2 per share dividend which provides a yield of 4.1%. In addition, investors have a good entry point and the option to invest in a high-quality franchise at an attractive valuation , with good prospects for share price appreciation. Learn more about this financial newsletter at Vita Nelson's Direct Investing. |
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