Is It Too Late To Consider NextEra Energy (NEE) After Its Strong Share Price Run?

• If you are wondering whether NextEra Energy is still fairly priced after its recent run, this article will walk through what the current share price could be implying about value.
• The stock recently closed at US$95.68, with stated returns of 3.2% over 7 days, 12.8% over 30 days, 18.2% year to date, 38.4% over 1 year and 46.0% over 3 years, compared to 43.2% over 5 years.
• Recent news coverage around NextEra Energy has focused on its position in the US utilities sector and investor interest in companies linked to power infrastructure and renewables. This helps explain the attention on its share price. Commentary has also highlighted how utilities can feature in portfolios for income and stability, which can influence how investors react to price moves.
• NextEra Energy currently scores 1 out of 6 on our valuation checks, suggesting it screens as undervalued on only one of the metrics we apply. You can see the detailed breakdown in our valuation score. Next we will walk through the main valuation approaches used on this stock and then finish with a framework that can help you interpret all of them together.

NextEra Energy scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: NextEra Energy Dividend Discount Model (DDM) Analysis

The Dividend Discount Model estimates what a stock could be worth today by projecting all future dividends and discounting them back to the present. It is essentially asking what you might reasonably pay for the stream of dividend payments that NextEra Energy is expected to generate.

For NextEra Energy, the model uses a current dividend per share of US$2.70, a return on equity of 9.51% and a payout ratio of about 61%. The implied long term dividend growth rate used in the model is 3.41%, which has been capped from an initial input of 3.71%, with an expected growth figure of 3.71%. These inputs aim to balance dividend growth with the need to keep payouts sustainable relative to earnings.

On this basis, the DDM arrives at an estimated intrinsic value of about US$75.79 per share. Compared with the recent share price of US$95.68, this implies the stock screens as around 26.2% overvalued using this method alone.

Result: OVERVALUED

Our Dividend Discount Model (DDM) analysis suggests NextEra Energy may be overvalued by 26.2%. Discover 51 high quality undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for NextEra Energy.

Approach 2: NextEra Energy Price vs Earnings

For a profitable company like NextEra Energy, the P/E ratio is a useful shorthand for what investors are currently willing to pay for each dollar of earnings. It ties the share price directly to the earnings base, which is often the key driver of long term returns for income and total return investors.

What counts as a “normal” or “fair” P/E depends on how the market views a company’s earnings growth prospects and risk profile. Higher expected growth or lower perceived risk can support a higher multiple, while slower growth or higher risk usually leads to a lower one.

NextEra Energy currently trades on a P/E of 29.17x. That is above the Electric Utilities industry average of 22.58x and slightly above the peer average of 28.48x. Simply Wall St’s Fair Ratio for NextEra Energy is 29.82x. This is its estimate of an appropriate P/E given factors such as earnings growth, margins, industry, market cap and company specific risks. This Fair Ratio can be more informative than a simple peer or industry comparison because it adjusts for these company level characteristics.

Since the Fair Ratio of 29.82x is close to the current P/E of 29.17x, NextEra Energy screens as about fairly valued on this measure.

Result: ABOUT RIGHT

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Upgrade Your Decision Making: Choose your NextEra Energy Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce Narratives, which let you attach your own story about NextEra Energy to the numbers by tying your assumptions for future revenue, earnings and margins into a forecast that leads to a Fair Value that you can compare with the live share price.

On Simply Wall St, Narratives live in the Community page and are straightforward to use. You choose inputs that match your view of the business, the platform turns that view into projected financials and a Fair Value estimate, and you can then see at a glance whether your story suggests the stock looks expensive or inexpensive at the current price.

Narratives update automatically when new information such as news or earnings is added to the platform, so your forecasts and Fair Value stay aligned with the latest data rather than being a one off spreadsheet exercise.

For example, one NextEra Energy Narrative on the optimistic end currently assumes a Fair Value of US$111.00 with faster revenue growth, higher profit margins and a future P/E above 27x. A more cautious Narrative assumes a Fair Value of about US$70.45 with lower revenue growth and a future P/E near 19x, which shows how different but clearly defined stories can lead to very different views on what the same share price means.

For NextEra Energy however we'll make it really easy for you with previews of two leading NextEra Energy Narratives:

First up is a bullish view that leans into long term electrification and data center demand, then a more restrained view that keeps a closer eye on how much optimism is already reflected in the price.

🐂 NextEra Energy Bull Case

Fair value used in this bullish Narrative: US$111.00 per share

Implied undervaluation versus the recent US$95.68 share price: about 13.8%

Assumed revenue growth rate: 12.87% a year

• Analysts behind this view see faster revenue growth and higher profit margins over the next few years, supported by larger scale, advanced storage and the ability to reposition existing renewable assets as contracts roll off.
• The Narrative leans on long term electricity demand from data centers, transport electrification and industrial reshoring, with nuclear projects, grid digitalization and all source energy solutions expected to support earnings.
• Key risks flagged include higher interest costs on heavy capital spending, changes to renewable incentives, more distributed generation, tougher competition and Florida weather events that could pressure earnings.

🐻 NextEra Energy Bear Case

Fair value used in this more cautious Narrative: US$90.83 per share

Implied overvaluation versus the recent US$95.68 share price: about 5.3%

Assumed revenue growth rate: 11.69% a year

• This view still recognises electricity demand growth, renewables advantages and regulated utility earnings, but assumes a lower Fair Value and a future P/E of 24.16x that keeps expectations more tempered.
• Analysts focus on how much of the long term growth story might already be reflected in the share price, with recent price target moves described as relatively small and some research highlighting a limited margin for execution risk.
• Risks highlighted include possible pressure on returns from higher financing costs, policy and permitting uncertainty, modest earnings growth at Florida Power & Light, rising distributed energy competition and the need for continued delivery on guidance.

Do you think there's more to the story for NextEra Energy? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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