NextEra Energy Q2 Preview: I Expect Good News (Rating Upgrade)

Core Viewpoint - NextEra Energy, Inc. (NEE) has upgraded its stock rating from HOLD to BUY due to strong Q1 earnings, positive economic indicators, and an improved interest rate outlook [3][9]. Financial Performance - NEE reported Q1 earnings with an EPS that exceeded market consensus by $0.11 per share [3]. - Management provided full-year earnings guidance of $3.23 to $3.43 per share, with expectations for operating cash flow growth to match or exceed EPS growth [3][4]. - Anticipated annual dividend growth of approximately 10% through at least 2026 [4]. Economic and Market Context - Florida's economy is performing well, contributing to strong customer growth for NEE's utility subsidiary, Florida Power & Light, which added about 100,000 customers in Q1 2024 [4][5]. - NEE's renewable energy subsidiary has expanded its backlog of projects from 18,735 MW at year-end 2023 to 21,500 MW, indicating robust growth potential [5]. Interest Rate Outlook - The interest rate outlook has improved, with a significant probability of at least two rate cuts by the end of the year, which could positively impact NEE's valuation [6][9]. - Current 10-year treasury rates have decreased from around 4.7% to approximately 4.2%, which may enhance NEE's stock price attractiveness compared to treasury bonds [6]. Valuation Metrics - NEE's P/E ratio (TTM) stands at 21.82, which is 25.57% higher than the sector median of 17.37, indicating a premium valuation [8][10]. - The P/E ratio is slightly below its 5-year average, suggesting some valuation compression despite the premium [8][10].