NEE Soars 16% In A Single Month, Time To Buy The Stock?
We believe there is a near-equal mix of good and bad in NEE stock given its overall Moderate operating performance and financial condition. Hence, together with its Very High valuation, this makes the stock look Risky. Here is our multi-factor assessment.
| CONCLUSION | |
|---|---|
| What you pay: | |
| Valuation | Very High |
| What you get: | |
| Growth | Moderate |
| Profitability | Very Strong |
| Financial Stability | Weak |
| Downturn Resilience | Weak |
| Operating Performance | Moderate |
| Stock Opinion | Risky |
NEE stock has jumped meaningfully recently and we currently find it risky. This may feel like a caution, and there is significant risk in relying on a single stock. However, there is a huge value to a broader diversified approach. Strategic asset allocation and diversification helps you stay invested. Did you know investors who panicked out of the S&P in 2020 lost significant upside that followed? Trefis High Quality Portfolio and Empirical Asset Management’s asset allocation approach are designed to reduce volatility so you can stay the course.
Let’s get into details of each of the assessed factors but before that, for quick background: With $169 Bil in market cap, NextEra Energy provides electric power generation, transmission, and distribution through wind, solar, nuclear, coal, and natural gas, serving about 11 million people across 5.7 million customer accounts in Florida.
[1] Valuation Looks Very High
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| NEE | S&P 500 | |
|---|---|---|
| Price-to-Sales Ratio | 6.5 | 3.3 |
| Price-to-Earnings Ratio | 28.7 | 24.0 |
| Price-to-Free Cash Flow Ratio | 45.4 | 21.2 |
This table highlights how NEE is valued vs broader market. For more details see: NEE Valuation Ratios
[2] Growth Is Moderate
- NextEra Energy has seen its top line grow at an average rate of 16.7% over the last 3 years
- Its revenues have grown 0.2% from $26 Bil to $26 Bil in the last 12 months
- Also, its quarterly revenues grew 10.4% to $6.7 Bil in the most recent quarter from $6.1 Bil a year ago.
| NEE | S&P 500 | |
|---|---|---|
| 3-Year Average | 16.7% | 5.3% |
| Latest Twelve Months* | 0.2% | 5.2% |
| Most Recent Quarter (YoY)* | 10.4% | 6.1% |
This table highlights how NEE is growing vs broader market. For more details see: NEE Revenue Comparison
[3] Profitability Appears Very Strong
- NEE last 12 month operating income was $7.6 Bil representing operating margin of 29.5%
- With cash flow margin of 47.1%, it generated nearly $12 Bil in operating cash flow over this period
- For the same period, NEE generated nearly $5.9 Bil in net income, suggesting net margin of about 22.8%
| NEE | S&P 500 | |
|---|---|---|
| Current Operating Margin | 29.5% | 18.6% |
| Current OCF Margin | 47.1% | 20.3% |
| Current Net Income Margin | 22.8% | 12.6% |
This table highlights how NEE profitability vs broader market. For more details see: NEE Operating Income Comparison
[4] Financial Stability Looks Weak
- NEE Debt was $93 Bil at the end of the most recent quarter, while its current Market Cap is $169 Bil. This implies Debt-to-Equity Ratio of 55.0%
- NEE Cash (including cash equivalents) makes up $1.7 Bil of $199 Bil in total Assets. This yields a Cash-to-Assets Ratio of 0.9%
| NEE | S&P 500 | |
|---|---|---|
| Current Debt-to-Equity Ratio | 55.0% | 20.9% |
| Current Cash-to-Assets Ratio | 0.9% | 7.0% |
[4] Downturn Resilience Is Weak
NEE has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.
2022 Inflation Shock
- NEE stock fell 47.2% from a high of $93.36 on 31 December 2021 to $49.32 on 9 October 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
- The stock is yet to recover to its pre-Crisis high
- The highest the stock has reached since then is $85.43 on 2 October 2024 , and currently trades at $82.11
| NEE | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -47.2% | -25.4% |
| Time to Full Recovery | Not Fully Recovered days | 464 days |
2020 Covid Pandemic
- NEE stock fell 35.6% from a high of $70.56 on 4 March 2020 to $45.41 on 23 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
- However, the stock fully recovered to its pre-Crisis peak by 30 July 2020
| NEE | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -35.6% | -33.9% |
| Time to Full Recovery | 129 days | 148 days |
2008 Global Financial Crisis
- NEE stock fell 48.9% from a high of $18.14 on 5 December 2007 to $9.27 on 10 October 2008 vs. a peak-to-trough decline of 56.8% for the S&P 500.
- However, the stock fully recovered to its pre-Crisis peak by 29 January 2013
| NEE | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -48.9% | -56.8% |
| Time to Full Recovery | 1572 days | 1480 days |
But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read NEE Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.