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This Supercharged Growth Stock Runs Circles Around its Rivals

Motley Fool - Mon Jan 29, 5:10AM CST

NextEra Energy(NYSE: NEE) is an outlier. While it operates in the sleepy utility sector, it's anything but lethargic. It has delivered peer-leading earnings growth over the last decade, beating the industry average by a wide margin.

Even though NextEra is already one of the largest utilities in the country, it expects to continue growing at an above-average pace. That makes it a great option for those seeking outsized returns from this sleepy sector.

Not your average utility stock

NextEra Energy's CEO, John Ketchum, highlighted the company's outperformance compared to its peers on the fourth-quarter conference call. He pointed out, "Over the past 10 years, we have delivered compound annual growth in adjusted EPS (earnings per share) of roughly 10%, which is the highest among all top 10 power companies. Over that same period, the remaining top 10 power companies have achieved, on average, compound annual growth in adjusted EPS of roughly 2%."

NextEra Energy has grown at a blistering rate for a utility. Several factors have helped power its ability to grow much faster than its peers. Geography is a big driver. The company's electric utility, Florida Power & Light (FPL), operates in one of the fastest-growing states, so it benefits from strong customer growth (FPL added 81,000 customers during the fourth quarter). Florida also benefits from abundant sunshine. That's enabling the company to build lots of low-cost solar energy capacity. It added 1.2 gigawatts (GW) last year and plans to add another 4.8 GW over the next few years.

Another big growth driver for NextEra is its energy resources segment. The company owns a growing portfolio of energy infrastructure assets (e.g., power plants, gas pipelines, and electricity transmission lines) that support other utilities and end users. This segment provides the company with additional growth drivers. For example, it placed 5.6 GW of new wind, solar, and storage projects into service last year. Those projects helped increase this segment's adjusted earnings by nearly 13%.

Plenty of power to continue growing at an above-average pace

NextEra Energy fully expects to continue growing at a strong rate in the coming years. It anticipates that FPL will continue benefiting from Florida's abundant sun and outsized population growth. Ketchum stated on the fourth-quarter call that "by 2032, we expect to increase FPL solar from 5% of our total generation today to roughly 35% by adding over 15,000 incremental megawatts." On top of that, the company continues "to believe FPL is strategically well positioned as Florida remains one of the fastest-growing states in the U.S. with a population growth that is expected to roughly double the national average through 2030. Florida's economy is also growing and is now the 14th largest in the world if Florida were a country."

Meanwhile, the company's energy resources segment continues to grow briskly as it capitalizes on opportunities to support the country's accelerating renewable energy demand. NextEra had a record year for originating new investments in 2023, adding about 9 GW to its backlog, which now stands at over 20 GW. Ketchum noted, "Energy resources continues to see strong demand and is well positioned to realize its development expectations over the four-year period ending 2026. Assuming we achieve the midpoint of the range, Energy Resources will be operating a roughly 63-gigawatt renewable portfolio by the end of 2026 that would be larger than the installed renewables capacity of all but nine countries." The company also added a record amount of transmission projects last year, boosting that backlog to $1.9 billion of capital investments through 2027.

These catalysts drive the company's view that it can continue growing its earnings briskly. While it expects its earnings growth rate to slow to around 5% at the mid-point of its guidance range this year, it sees a reacceleration in 2025 and 2026 of 6% to 8% annual growth from this year's range. However, that could prove conservative. Ketchum commented in the fourth-quarter earnings release that "Given the strength of both businesses, we will be disappointed if we are not able to deliver financial results at or near the top of our adjusted earnings per share expectations ranges in each year through 2026, while maintaining our strong balance sheet and credit ratings."

For context, the company's outlook suggests it will grow faster than most rivals. For example, Duke Energy expects to deliver long-term earnings growth of 5% to 7% annually through 2027. That's also Xcel Energy's long-term earnings growth target range.

The best of the bunch

NextEra Energy has grown much faster than its rivals over the past few years, thanks to its focus on Florida and renewable energy. Those two catalysts should continue to power above-average growth. The company remains the top choice for investors in the utility sector.

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Matthew DiLallo has positions in NextEra Energy. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool recommends Duke Energy. The Motley Fool has a disclosure policy.

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