NextEra Is First Utility on the Way to Joining the $100 Billion Club
The world of mega-cap stocks has grown in ranks during the 10-year bull market. Having a mega-cap traditionally was having a market capitalization of $100 billion or more, but some investors are using $200 billion as the benchmark now that there are so many companies with $100 billion or more in value. It turns out that there are 55 member of the S&P 500 that have a market cap of $100 billion or more. Despite the world being powered by electricity, it seems odd that not a single one of the mega-caps is a public utility.
NextEra Energy Inc. (NYSE: NEE) may be the first of the large publicly traded utilities to hit the $100 billion mark. At $91 billion, it’s just about 10% shy of the mark — and the next three utilities by value are far lower: Duke ($65 billion), Dominion ($60 billion) and Southern ($53 billion).
With a share price of $190.75 and a 52-week high of $192.17, NextEra Energy needs to rise 9.9% to hit that $100 billion market capitalization mark. That would only require its shares to rise to $209.50 or so on the latest information.
Some key members on Wall Street believe NextEra can achieve this feat and become the first of the big public utilities to be worth $100 billion or more.
NextEra Energy was raised to Overweight from Equal Weight and the target price was raised to $207 from $187 at Barclays. The firm continues to value NextEra with a 15% premium to peer utilities. Looking out to 2021, the firm’s Eric Beaumont sees upside from a low level of risk and the PCG/PPA exposure offers an attractive entry point to new investors looking at utilities.
Also noted as upside drivers by Barclays are better than average earnings growth and a significant backlog of projects and structural trends towards renewable energy generation sources.
It should be noted that NextEra is currently above its consensus analyst target price, but the street-high analyst target price is $217 for the stock.
Zacks Equity Research recently noted that it has a Buy (#1) rating and noted that NextEra Energy managed to beat estimates in three out of the last four quarters, with the average positive surprise being 2.52%. Its earnings estimates for 2019 and 2020 indicate 9.09% and 8.12% year-over-year increase to $8.40 and $9.08 per share, respectively.
Companies which keep beating earnings estimates tend to get more favorable ratings and upside targets from analysts than companies which have lower ratings.
The independent research firm Argus recently reiterated its Buy rating as well, raising its target to $200 in that call.
The company formerly known as FPL (Florida Power & Lighting operated approximately 24,500 megawatts of net generating capacity at the end of 2018. It also serves approximately 10 million people with approximately 5 million customer accounts in Florida via about 75,000 miles of transmission and distribution lines.
While some analysts see the $100 billion mark coming close, NextEra has a consensus analyst target price of $190.43 from the Refinitiv consensus sell-side estimate.
There are no assurances that NextEra will hit the $100 billion market cap club. Even if it does hit that level, prudent investors might expect that to take every bit of a year or even longer — and it will probably require for no recession or major stock market sell-off that is strong enough to even hurt utilities to get in the way.