NEE Stock Trades at a Premium Valuation to Its Industry: How to Play?
NextEra Energy 's NEE shares are trading at a premium compared to the Zacks Utility - Electric Power industry. Its price-to-earnings F12M 18.86X is higher than the industry average of 15.27X and the broader Zacks Utilities sector's average of 16.15X.
The company benefits from its well-chalked-out investment plan to strengthen its operations, strategic acquisitions, rising customer base and improvement in the economic condition in its service regions.
NEE's Price Performance
The increase in NextEra Energy's share prices is a reflection of the strong performance of the company, its focus on emission reduction and customer growth.
Price Performance (Two Months)
Should you consider adding NEE to your portfolio only based on positive price movements? Let's delve deeper and find out the factors that can help investors decide whether it is a good entry point to add NEE stock to their portfolio.
Factors Contributing Toward Strong Performance
Florida's improving economic conditions are driving population growth and energy demand, allowing NEE to expand its customer base. Its subsidiary, Florida Power & Light Company (FPL), offers residential electricity rates well below the national average, enhancing customer appeal and market positioning.
Nearly 89% of NextEra Energy's customer base consists of residential users, with the remaining 11% being commercial. The company's unmatched scale, technological edge and operational expertise enable it to deliver consistent, superior returns. Its extensive operations and expanding renewable energy portfolio provide strong competitive advantages.
NextEra Energy Resources continues to make significant long-term investments in clean energy. Between 2024 and 2027, the company plans to add 36.5-46.5 GW of new renewable capacity. In Q1 2025 alone, it added 3.2 GW of renewable projects, growing its contracted renewables backlog to nearly 28 GW.
Over the past decade, technological advances have driven down the cost of renewable energy, allowing NEE to sidestep fossil fuel market volatility and secure long-term power purchase agreements. These agreements provide stable and predictable cash flows. Additionally, investments in advanced battery storage systems enhance grid reliability and open new revenue streams.
NextEra Energy also benefits from one of the lowest cost structures in the utility sector, supported by operational efficiencies, economies of scale in renewables, and strategically located assets. These factors underpin strong profit margins and reinforce the company's competitive edge.
NEE's capital investment strategy is focused on long-term, consistent revenues and superior returns. The company intends to invest more than $72.6 billion through 2029 to strengthen its operations further.
NEE's Earnings Surprise
Thanks to efficient plan execution and strategic capital investments, NextEra Energy exceeded earnings per share expectations in the first quarter of 2025. Impressively, the company has outperformed earnings estimates for four consecutive quarters, delivering an average earnings surprise of 3.58%.
Another operator in the utility space, Duke Energy Corporation DUK, reported earnings surprise in three out of the past four reported quarters and lagged once, resulting in an average earnings surprise of 6.07%.
NextEra Energy's Earnings Estimates Moving Up
The company expects its 2025 earnings per share in the range of $3.45-$3.70 compared with $3.43 a year ago. The Zacks Consensus Estimate for NEE's 2025 and 2026 earnings per share indicates year-over-year growth of 7.29% and 7.95%, respectively. It expects to increase its earnings per share in the range of 6-8% annually through 2027 from the 2024 level.
The Zacks Consensus Estimate for Duke Energy's 2025 and 2026 earnings per share reflects a year-over-year growth of 7.12% and 6.10%, respectively.
NEE Stock Returns Better Than Its Industry
NextEra Energy's trailing 12-month return on equity (ROE) is 12.06%, ahead of the industry average of 10.13%. ROE is a financial ratio that measures how well a company uses its shareholders' equity to generate profits. The current ROE of the company indicates that it is using shareholders' funds more efficiently than its peers.
Another prominent utility, The Southern Company SO, produces a large volume of clean electricity, like NextEra Energy. The Southern Company's ROE is better than its industry at 12.7%.
NextEra Energy Raises Value of Shareholders
NEE plans to increase the dividend rate annually by 10%, at least through 2026, from the 2024 base, subject to its board's approval. The current annual dividend of the company is $2.27 per share, and the dividend yield of 3.03% is better than the Zacks S&P 500 Composite's yield of 1.58%. Check NEE's dividend history here.
The Southern Company's current annual dividend is $2.96 per share, reflecting a dividend yield of 3.28%. Southern Company's management raised its dividend five times in the past five years.
Rounding Up
NextEra Energy maintains steady performance, supported by growing demand for clean energy across its service areas. The company's broad U.S. presence, operational efficiency, economies of scale in renewables, and strategically positioned projects continue to drive and enhance its overall results.
Despite its premium valuation, investors can retain this Zacks Rank #3 (Hold) utility in their portfolio, given its stable ROE, rising earnings estimates and regular dividend payment capabilities. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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NextEra Energy, Inc. (NEE): Free Stock Analysis Report
Southern Company (The) (SO): Free Stock Analysis Report
Duke Energy Corporation (DUK): Free Stock Analysis Report
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