Utility & Energy-Focused Fund Recommends NextEra Energy

Jay Rhame, electric utility and natural gas analyst at Reaves Asset Management was on Benzinga’s PreMarket Prep show on Monday talking about the utilities sector – among other subjects. The expert said his firm’s favorite utility right now is NextEra Energy Inc NEE, which he classified as “two utilities in one.”

On the one hand, there’s the electric utility segment for South Florida, which services a very big population. On the other hand, there’s the renewable energy generation segment: the company is one of the largest providers of wind energy in the world, plus it is building several solar projects (which have gotten cheap enough, even in the South-East), Rhame explained, adding that this would provide the company with plenty of opportunities in the years to come.

“If you step back a second, I think that, particularly in the utilities space, investors tend to overpay for yield and underpay for growth,” he stated. “There’s only slight differences, but NextEra can grow their earnings something like 7 percent a year, whereas some of the bigger companies [like] Duke Energy Corp DUK or Southern Co SO might only be able to grow 2 or 3 percent.” However, since they offer higher dividend yields than NextEra, “they end up trading for the same multiple even though NextEra’s growth outlook is so much better,” he concluded.

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Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.