NextEra Energy To Sell Equity Units For Project Funding

NextEra Energy (NYSE:NEE) announced that it will sell $1.5 billion of equity units, with each unit valued at $50. The total proceeds — which are expected to be $1.45 billion after deduction — will be added to the general funds of NextEra Energy Capital Holdings, a subsidiary of NextEra Energy.

NextEra Energy Capital Holdings expects to utilize the general funds to finance investments in energy and power projects, and for other general corporate purposes, including the repayment of all or a portion of outstanding commercial paper obligations.

Each equity unit will consist of a contract to purchase NextEra Energy’s common stock in the future and a 5% undivided beneficial ownership interest in a NextEra Energy Capital Holdings debenture due Sep 1, 2024, to be issued in the principal amount of $1,000.

The conversion of equity units into equity shares will undoubtedly result in dilution of the company’s earnings. However, NextEra Energy’s capital projects that are lined up for the next few years will allow it to generate ample returns to satisfy its shareholders.

Capital Plans

NextEra Energy has well-chalked plans to invest nearly $50-$55 billion in different projects over the 2019-2022 period. These investments will be directed to modernize and strengthen the company’s existing infrastructure, in turn enabling it to serve the expanding customer base more effectively. The regulated investment helped the company generate adequate cash flow, which was utilized to strengthen existing operations and increase its shareholders’ value.

Earnings and Dividend Growth

Return on Equity (ROE) is a measure of a company's efficiency in utilizing its shareholders' funds. NextEra Energy’s ROE stands at 10.46%, better than its industry's 9.44%. This indicates that the company is efficiently utilizing funds. NextEra Energy is poised to gain from positive economic fundamentals in its service territories and the completion of capital projects that will enable it to effectively cater to rising demand from the expanding customer base.

The company is targeting compound annual earnings growth rate of 6-8% through 2021 from an expected base of $7.70 per share in 2018. For 2022, it expects an earnings growth rate of 6-8%.

NextEra Energy aims at dividend per share growth of at least 12-14% till 2020, off a 2017 dividend base.

Price Performance

In a year’s time, shares of NextEra Energy have gained 28.9% compared with the industry’s 12.7% rally.

Zacks Rank & Key Picks

Currently, NextEra Energy carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Unitil Corporation (NYSE:UTL) , IDACORP Inc. (NYSE:IDA) and Pola Power Inc (NASDAQ:POLA) . While Unitil Corp and IDACORP carry a Zacks Rank #2 (Buy), Pola Power sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Unitil Corp, IDACORP and Pola Power reported average positive earnings surprise of 215.05%, 7.79% and 25%, respectively, in the last four quarters.

The Zacks Consensus Estimate for Unitil Corp, IDACORP and Pola Power for 2019 has moved up 0.9%, 0.5% and 10%, respectively, in the past 60 days.

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