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NextEra Energy's Investment in Renewables to Drive Growth

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On Aug 24, 2016, we issued an updated research report on NextEra Energy, Inc. (NEE - Free Report) . The company's investment in renewable generation and infrastructure upgrade should boost its performance over the long haul. On the flip side, concerns related to commodity price fluctuations might deter its growth substantially.

Recently, NextEra Energy reported second-quarter 2016 adjusted earnings of $1.67 per share, outpacing the Zacks Consensus Estimate of $1.58 by 5.7%. Reported earnings were also up 7.1% year over year on the back of higher earnings from its subsidiary, NextEra Energy Resources. However, NextEra Energy’s operating revenues came in at $3,817 million, lagging the Zacks Consensus Estimate of $4,459 million by 14.4%. Reported revenues were also down 12.4% from $4,358 million a year ago.

The company’s ongoing focus on renewables over the last few years has been impressive. In the second quarter, Florida Power & Light Company (FPL) secured site certification for its natural gas-fuelled power plant, as part of the subsidiary’s ongoing strategy of investing in clean sources of power generation while phasing out coal-fired generation. Construction of three new cost-effective solar power plants, aimed to triple the company’s use of solar energy, is also underway.

FPL continues to expand its customer base. The unemployment rate in Florida was 4.7% in Jun 2016, the lowest since 2007. NextEra Energy also stands to benefit from the positive economic fundamentals, which will help it to achieve the targeted compound annual earnings growth rate of 6% to 8% through 2018 from a 2014 base.

However, volatility in prices of fuel, electricity, renewable and other energy commodities could create operational risks for the company. Supply costs for providing full energy and capacity requirement services could also have an adverse impact on NextEra Energy’s earnings. Increasing indirect input costs is another headwind for the company.

Zacks Rank & Key Picks

NextEra Energy carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the utility space include Korea Electric Power Corp. (KEP - Free Report) , Spark Energy, Inc. and DTE Energy Company (DTE - Free Report) . Both Korea Electric and Spark Energy sport a Zacks Rank #1 (Strong Buy), while DTE Energy is a Zacks Rank #2 (Buy) stock.

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