NextEra Energy (NEE)
Servicios públicos / Electricidad (regulada + renovables)
The largest utility in the US and the largest renewables developer in the world: FPL (regulated, Florida, allowed ROE 10.95%) + NEER (record backlog ~30 GW), adjusted EPS growing ~8%, dividend aristocrat. But at ~$84 (P/E ~24× adjusted earnings, a premium over the group) the return is modest: 5-year base ~$92 (+2%/year price, +6% with dividend): Fairly valued — top-quality business, fully valued; the multiple compresses and the abrupt post-2030 tax-credit cliff looms.
- Price
- $83.97
- Intrinsic value (5y, base)
- $92
- Total annual return (5y)
- 5.5%
- Status (nominal)
- Fairly valued
- Margin of safety
- +4%
The essentials
- Two businesses of different natures (sum of the parts): FPL — the largest regulated electric utility in the US, a monopoly in Florida, rate base growing ~$5.5-6.3bn/year at an allowed ROE of 10.95% (earns ~11.7%) — and NEER — the world's largest renewables generator (~37.5 GW, 95% contracted, record backlog ~30 GW).
- The headline metric is adjusted EPS (management guides on it; GAAP $3.30 is depressed by the mark-to-market of hedges, a legitimate adjustment): $3.71 in 2025 (+8.2%), with guidance of +8% annually through 2032. The engine is capital deployment (~$25bn/year of capex → ~$295-325bn through 2032) that expands the rate base + the backlog.
- At ~$84 it trades at ~24× 2025 adjusted earnings ($3.71) — a clear premium (~+13%) over the regulated-utilities group (~19-21×). The base total return +6% (+2%/year price and +4% dividend) depends on the multiple holding; it compresses toward ~19× as the growth premium erodes and the abrupt post-2030 tax-credit cliff (OBBBA) approaches. Central pivot variable: the Dominion acquisition (~$67bn, announced 18-May-2026) to capture data-center demand.
Intrinsic value — two valuation methods
Total return at 5 years: 5.5%/year = 1.9% appreciation + 3.6% dividend. The target price ($92) is ex-dividend; the $16 in dividends collected over 5 years are added separately.
The methods disagree: one places the value today above the price ($84) and the other below.
Pillars of the analysis
The verdict — today vs 5 years
Today — fairly valued: at $84 trades ~4.4% below its value discounted to today (~$88); the discount is positive but does not reach the margin of safety we require (≥38%).
At 5 years — En valor: the target price ($92) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.
The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$56.
Thesis
The business
NextEra is the highest-quality utility in the US: FPL (the largest regulated electric utility, a monopoly in Florida with an allowed ROE of 10.95% that it earns comfortably, ~11.7%) provides the stable, predictable base; NEER (the world's largest renewables developer, record backlog) provides the growth. It has been #1 among the majors in adjusted EPS growth and ROE for a decade. There is nothing wrong with the business.
The valuation
A utility is valued on P/E over adjusted earnings (the metric management guides on and the market pays for) plus rate-base growth. NEE trades at ~24× 2025 adjusted earnings ($3.71) — a premium over the mature regulated-utilities group (SO/DUK/D/AEP ~19-21×), justified by its better growth (~8% adjusted EPS versus ~5-6% for the group). The base scenario projects adjusted earnings growing ~8% (management's guidance, backed by FPL's rate base plus NEER's backlog) → $3.79 (TTM) to ~$5.6 in five years, with the multiple compressing from ~23× to ~19× (the growth premium erodes toward the range of a quality utility as the abrupt post-2030 tax-credit cliff approaches). That yields ~$92/share → a price CAGR of +2%, +6% with the dividend (3.0%). As a cross-check, the business is a sum of the parts: FPL (~63%, regulated, ~17-18×) + NEER (~35%, growth but with tax-credit risk, ~18-20×) → a blend of ~19×.
The margin of safety
It trades close to intrinsic value, far from the required margin of safety. The base return (+6% total: +2%/year price and +4% dividend) sits below the average return on stocks (~10%, the method's bar). Discounted to today at the risk-free rate, the discount to value is small and the earnings-power DCF sits below the price → far from the required margin of safety. The verdict is Fairly valued: a top-quality utility, fully valued. The dividend-aristocrat record (30+ years, ~10%/year decelerating to ~6-8%) is the bulk of the return; the upside depends on the multiple holding and on data-center growth + Dominion materializing. The risk profile is asymmetric to the downside given rate sensitivity and the abrupt expiration of tax credits.
What to watch
Three things. The abrupt post-2030 tax-credit cliff (OBBBA): NEER's growth model depends on the protected pipeline (through 2030) being executed and on unsubsidized economics sustaining the returns afterward — the structural disconfirmer. The Dominion acquisition (~$67bn, closing in 12-18 months): if it closes accretively, it captures Virginia's data-center demand (the world's largest hub) and creates the largest regulated utility — but the multi-jurisdiction regulatory process (FERC/NRC/VA-NC-SC) is the risk. And interest rates: NEE is a highly leveraged utility ($103bn of debt); its competitive advantage in renewables is its low cost of capital, which rises with rates. If it corrects to a no-premium utility multiple (~17-18×, ~$70-80), the required margin of safety appears — the business is sound, the price is what is fully valued.
Educational / informational. Does not constitute investment advice.