NextEra Energy (NEE)

Total return at 5 years: 7.5%/year = 3.8% appreciation + 3.7% dividend. The target price ($95) is ex-dividend; the $16 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $130 · Multiples $90) exceeds the market price ($79).

Today — fairly valued: at $79 trades ~12.4% below its value discounted to today (~$90); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($95) 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 ~$57.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($79) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-0.4%/year) than we project (11.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$7.4 bn of owner earnings in year 5 (vs ~$12.7 bn of our base case). It recalculates if the DCF assumptions are edited.

A regulated utility is valued on P/E over adjusted earnings (equity-level): the value sits in the regulated base (rate base), which grows with capex at an allowed ROE. GAAP can be depressed by the mark-to-market of hedges → the adjusted figure is used. It returns capital via dividend (a dividend aristocrat); it may issue some equity to fund capex. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

A utility is valued on P/E over adjusted earnings attributable to the parent: the GAAP result is depressed or inflated by the mark-to-market adjustment on non-qualifying hedges, and the company publishes the full reconciliation in every release. The grid is rolling: the base year is the trailing twelve months ended June 30, 2026, with adjusted attributable earnings of US$8,164 million built by levels from the July 24, 2026 release (fiscal 2025 US$7,683 million, plus first-half 2026 US$4,682 million, minus first-half 2025 US$4,201 million), equal to US$3.90 per share on 2,093.4 million diluted shares. The path is not extrapolated from the trajectory: it is anchored to the guidance the company reaffirmed that same day — adjusted earnings per share of US$3.92 to US$4.02 for 2026, aiming for the high end of the range, and a compound annual growth rate of 8% or more through 2032 off the US$3.71 fiscal-2025 base — and the adverse and favorable scenarios move the speed of that growth (~5% and ~9.5% per share annually) without touching the dividend policy. The value sits in Florida Power & Light's regulated base, which earned an 11.70% return on the average thirteen-month retail rate base as of June 30, 2026 against the 10.95% allowed under the 2025 rate settlement, and whose regulatory capital employed grew ~9.3% year over year. Shares grow ~1% per year from the equity issuance that funds the capital plan, so earnings per share grow somewhat less than the aggregate figure. The exit multiple compresses toward 16.5x, within the method's band for this type of business, because the expiration of clean-energy tax credits for capacity placed in service after 2030 caps the growth premium that today sustains the renewables arm. Florida Power & Light's rate-base series was not re-anchored with this quarter: the release and the 10-Q publish the change in regulatory capital employed, not its level, so the starting point is preserved and the limitation is disclosed. The pending Dominion Energy acquisition is valued separately from the base.

Today's multiple compresses on its own going forward as the metric per share grows. The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $95 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $79, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $95 in 5 years plus $16 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $90. Against the current market price ($79), the margin of safety is 12.4% (trades below the maximum → there is margin) and the total return at that price would be 7.5% annually.

• Multiple vs. the group. 20× adjusted earnings — above the method's band for this type of business (15-18x). Justified by better growth (~8% vs ~5-6%), but it is a premium.
• Growth vs. multiple. The multiple compresses 20×→16.5x as the premium erodes toward the terminal. At a fixed price, the P/E paid at year 5 falls to 14×.
• Margin of safety. Base +4%/year price (+8% with dividend) is below the average expected return (~10%); the discount to today is small, far from the required margin. The dividend is the bulk of the return.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✕ High incremental ROIC (compounding)
• ✓ CFROIC backs up the ROIC (100%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Regulated return (earned vs. allowed ROE). FPL earns ~11.7% versus the allowed 10.95% — solid execution within a favorable regulatory framework. The core of a well-run utility.
• Value creation (allowed ROE vs the 10% bar). 10.95% allowed vs the 10% bar ≈ +1pp: every new dollar of rate base creates value — a thin spread multiplied by the compound growth of the rate base; that is why capex is the engine.
• Earnings quality. GAAP is volatile (mark-to-market on hedges, tax-equity HLBV, XPLR impairments). Valuation should run on adjusted EPS — cleaner but requires understanding the adjustments.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

A utility's engine is rate base x the allowed ROE (FPL, regulated) plus contracted-renewables development (NEER). NEE grows by deploying capital (~$25bn/year of capex) that expands FPL's rate base (~+$5.5-6.3bn/year at an allowed ROE of 10.95%) and NEER's backlog (~35.1 GW, record origination). It is capital-intensive: it is funded with debt plus equity issuance, which is why free cash flow is negative by design (growth capex creates regulated rate base that earns above the cost of capital — malinvestment test: passes).

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. The growth is real: physical rate base (plants, transmission) plus GW of renewables deployed. Not monetary growth or an easy comp.
• Growth engine. FPL (rate base +~$5.8bn/year at 10.95% ROE) + NEER (record backlog ~35.1 GW). ~$295-325bn of capex through 2032. Data-center demand as a tailwind.
• Sustainability. The +8% adjusted EPS is well underpinned through 2030 (protected pipeline). The risk is post-2030: the abrupt tax-credit cliff threatens NEER's growth rate.

• Relevant in 10 years (recurrence). Electricity is about as recurring a demand as exists, and data-center/AI demand accelerates it. Regulated FPL = near-bond-like cash flow. Maximum predictability.
• Pricing power. FPL: set by the regulator (allowed ROE) — not market pricing power but a guaranteed return. NEER: contract (PPA) pricing, competes for each one.
• Moat and its direction. A wide, stable moat (regulatory + scale). FPL widening (new 2025-29 rate agreement); NEER mixed (strong scale, but the abrupt post-2030 tax-credit cliff weighs on it).
• Cyclicality / sensitivity. Not very cyclical (stable regulated demand) but very rate-sensitive (leverage plus cost of capital is its renewables advantage). Political risk to tax credits.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Regulated return (earned vs allowed ROE)Earns 11.7% vs allowed 10.9%
• !Value creation (allowed ROE − 10% bar)+0.9pp
• !Leverage (net debt / EBITDA)7.0x · Baa1 / A- / A-
• ✓Capex funding (liquidity + access)Liquidity $18.1 bn
• ✓Predictability (% regulated + rate-base growth)65% regulated · rate base +$5.8 bn/year

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage (regulated lens). High by design ($110.2bn of debt, ~7.0x net debt/EBITDA), but backed by a regulated rate base that earns an allowed ROE — judged with utility thresholds, not corporate solvency (which would mislabel it 'fragile').
• Credit quality (investment grade). Baa1 / A- / A-: the debt is backed by the regulated rate base and provides access to low-cost credit, the central input of a utility's model.
• Negative cash flow by design. FCF is negative because capex deploys rate base (which then earns the allowed ROE) — this is regulated investment, not cash stress. The correct lens is the regulated return, not cash conversion.
• Funding the capex plan. The ~$25bn/year plan is funded with debt plus equity issuance (dilution ~1%/year); it depends on continued access to capital markets and on rates not raising the cost of funding.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. No founder control; low insider ownership in percentage terms. Comp is 93% performance-based with robust guidelines, clawback, no employment contracts. Alignment by comp design, not by ownership.
• Capital allocation. Deploys ~$25bn/year at regulated/contracted returns above the cost of capital. Dividend aristocrat. Issues equity to fund itself (dilution ~1%/year). Proven discipline (#1 in the sector for 10 years).
• Integrity / candor. The committee applies a real downside penalty (−20% relative TSR modifier). Transparent disclosure. Some lingering noise over Florida campaign financing (2021).

• It is not cheap — fully valued: 20× adjusted earnings, above the method's band for this type of business (15-18x).
• It looks cheap against its own history: it trades at 20× — the multiple is weighed down by rate sensitivity plus fear over tax-credit policy.
• Genuine underperformance: 5-year TSR +18% versus the S&P +96% and Utilities +59% — but that reflects real headwinds (rates, policy, XPLR), not an obvious pricing error.
• The price is not set by the business as it stands alone: a corporate transaction is under way. On 15 May 2026 the company agreed to acquire Dominion Energy, and the S-4 registration statement was filed on 9 July 2026. Payment is mostly in its own shares — each Dominion share receives 0.8138 NextEra shares plus its pro rata portion of an aggregate US$360 million in cash — at a fixed exchange ratio that does not adjust for what the two share prices do between signing and closing. Because NextEra is the acquirer and is issuing the shares, its price does not embed a control premium but the opposite: the market's expectation about dilution and about whether the transaction completes. While the shareholder vote remains pending, part of the discount is that expectation and not a reading of the business.

This is a case of "careful: it may not be cheap, only appear so" (§9). The multiple's compression from ~27x to 20× removed the overpricing but did not create a margin of safety: against the method's band for this type of business (15-18x), NEE still carries a premium. The severe underperformance reflects genuine adverse factors (a leveraged utility punished by the 2022-25 rate cycle plus fear over the abrupt tax-credit cliff), not a clear perception-reality gap. The base return (+8% total) is mostly the dividend.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +3%/year (+18% total): the margin of safety protects the downside. The bull (+10%/year, +64% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Post-2030 tax-credit cliff (OBBBA). The central disconfirmer: without the subsidies, NEER's economics fail to sustain the returns and the multiple compresses toward that of a no-premium utility.
• Rate sensitivity. High leverage and cost of capital — its renewables advantage — make the stock very sensitive: high rates raise the cost of funding capex and compress a multiple whose dividend yield (3.2%) is already below the Treasury bond (4.5%).
• Cut to FPL's allowed ROE. The pending Florida Supreme Court appeal over the 10.95% ROE hits the ~65% regulated share of earnings if it succeeds.
• Execution of the Dominion acquisition. The multi-jurisdiction regulatory process could stall or turn dilutive; it is the case's pivot variable, with room to run in either direction.
• XPLR impairments. An acceleration of impairments on the XPLR stake would pressure reported earnings.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROE 12% above the 10% bar, but the margin is limited (+12%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A fast grower growing 11% at a PEG of 1.8 → reasonable for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -0% vs our 11%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -1%/yr, bull-scenario ceiling +7%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: cost advantage, intangibles, efficient scale, switching costs → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -0%, within what we project (11%) — the story squares with the numbers.