Generation RENEW:  Spotlight On NextEra

If we asked who the largest energy company in the U.S. was, the answer for – um, forever – was ExxonMobil (XOM).  Well guess what?  On October 6th that answer was wrong.  For on that date renewable energy giant NextEra (NEE) overtook ExxonMobil as the most valuable U.S. energy company as measured by market cap (NEE: $142.1bn; XOM: $141.2bn).  For anyone who has watched the energy market over the last decade this may not be a surprise.  The market has increasingly welcomed renewable energy and in 2018 NextEra was the largest producer of solar and wind energy in the world. It continues to rank among the largest generators of renewable energy and has plans to invest $50-$55 billion in new infrastructure through 2022.

Source:  NextEra Energy

Welcome to our first installation of the “Bellwether Chronicles”, where we turn the spotlight on a Renewables Infrastructure company of note.  These are companies that not only fit our investment characteristics, but are also leaders in the transition away from fossil fuels.  Headquartered in Juno Beach (FL), NextEra operates two segments: (1) electric companies in Florida Power & Light (FPL) and Gulf Power where collectively they serve 5.5 million retail electricity customers, and (2) NextEra Energy Resources (NEER).  While FP&L and Gulf own and operate some renewable generation, the vast majority of NextEra’s market leading work is done at NEER.  It is here where NextEra has helped pave the way for renewable energy, a critical shot caller in the push to drive down costs; Since 2009, solar energy costs have fallen 85% and wind energy costs have fallen 60%.

Source:  NextEra Energy

NextEra has been a large beneficiary of the virtuous cycle we outlined in our prior blog (“The Virtuous Cycle of Renewables Adoption”), a cycle it has utilized successfully since the 1990s.  Looking forward though, NextEra’s ultimate success is its focus on reducing emissions by relying heavily on two ambitious concepts: (1) electrify everything, and 2) generate most of the electricity needed from carbon free, renewable resources like the wind and the sun.  NextEra is smack in the middle of both of these megatrends at a time when Main Street demands for clean energy has reached a fever pitch.

There are also plenty of reasons to love NextEra as a purely financial investment. Since 2004, the company has delivered an 8.4% annual EPS growth, while increasing dividends at a compound annual growth rate of 9.4%.  Its fundamentally forward looking approach, (“skate to where the puck is going”), is one of the reasons NEE stock has significantly outperformed the S&P 500 Index and the S&P 500 Utility Index over the past 1, 3, 5, and 10-year periods.

Source:  FactSet, NextEra Energy

Even after everything we’ve written above, something is missing.  It’s what brought us to renewables infrastructure in the first place.  It all starts with NextEra’s “sleep at night” attributes, it’s the reason why the company is the largest constituent of our renewables index (ticker: RENEW) and increasingly a cornerstone of our Renewables and Energy Infrastructure strategies.  Roughly 90% of NEER’s net generating capacity is committed under long-term contracts, primarily with low-risk, investment-grade counterparties. The weighted-average remaining contract terms (aka, “average contract life”) is approximately 16 years. This visibility into the long-term underpins our definition of a bellwether and is a key consideration for stocks that we prioritize in our investment strategies. After all, there’s nothing like a good night of sleep.

Renewables Roundup

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Michael Cerasoli, CFA

Michael leads the Renewables effort at Eagle Global Advisors, including the development of active and passive strategies, and portfolio management. He is also the Co-Head of the Energy Infrastructure team and Co-Chair of the Energy Infrastructure Investment Committee.  He shares Portfolio Manager responsibilities for the firm’s four separate Energy Infrastructure strategies. Prior to joining Eagle in May 2014 Michael was employed by Goldman, Sachs & Co. for ten years where he covered Midstream for seven years and small/mid cap Oil Services for three.  Prior to Goldman, Michael worked for three years as a sell-side equity trader at various Wall Street firms. He earned bachelor’s degrees in Economics and History from Union College, and an MBA from the Hagan School of Business at Iona College. Michael holds the Chartered Financial Analyst designation.

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Curt Pabst

Curt is a member of the Energy Infrastructure Investment Committee and manages institutional client relationships for Eagle Global. Prior to joining Eagle, Curt held a similar position at an energy infrastructure asset management firm in Dallas, Texas. He has 39 years of investment experience.  Curt began his career at Kidder, Peabody in the institutional fixed income division, and spent a combined 15 years at Kidder, Peabody and then Merrill Lynch where he left as a Director of the firm. He has served as a partner/principal in both a hedge fund of funds and a venture capital fund. He received his bachelor’s degree in Economics from Grinnell College.

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