It’s highly like that renewable energy will account for more and more of our power in the years to come. While we may not receive the majority of our electricity from solar, wind and water sources — as opposed to natural gas and coal — in the short-term, it’s not too early to look at companies who will benefit from this trend.
One company that’s made big moves into the solar and wind space is NextEra Energy (NYSE: NEE), a Juno Beach, Florida-based utility that operates in five regions in the U.S. and four provinces, including Ontario, Quebec and Nova Scotia. The company gets 56% of its power from wind, 22% from natural gas and 3% from solar among other sources.
Wilson Magee, a portfolio manager with Franklin Templeton Investments, is bullish on this business. He thinks it’s one of the best utilities in the world and it operates in areas that have high population growth rates and increasing demand for energy.
It’s also a good grower, he says. Its operating earnings were up 12.5% year-over-year in the first quarter, while revenues were up 12%. It’s also increased its dividend every year since 2005 and pays a 3.02% yield today.
The stock price has climbed 20% over the last 12 months, in part because the company has said that it wants to put the wind, solar and fossil fuel plants that have long-term contracts into a new company that pays even higher yields.
Jonathan Arnold, an analyst with Deutsche Bank, hopes this new company will see the light of day. “We are increasingly of the view that NextEra should pursue a ‘YieldCo’ to lower its cost of capital in its core renewable business, particularly as some competitors in the utility and solar industries look to utilize such a structure,” he wrote in a January report.
Arnold, who has a hold on the company, would like to see more clarity from the company on where this is going — he was expecting that to come at the end of fiscal 2013, but now the company has said it will provide more details in the second quarter of this year.
Many analysts think this spinoff will happen, and if it does, it’s likely NextEra’s shares will rise. Even so, Magee says the company has stable cash flows, good profits, decent growth and demand for renewables is only going to get stronger.
The company is currently trading at $96 a share, but the mean 12-month price target is $106, according to S&P Capital IQ. The highest price target is $120, while the lowest is $90.
If you’re looking for a way to get into the renewable market today, then this company is one of your best bets.
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