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NextEra's Target Raised To $134 At Argus

NextEra's Target Raised To $134 At Argus

Argus Research has raised the target price of NextEra Energy Inc (NYSE: NEE) shares to $134 from $128. Its decision is based on new growth opportunities at the non-regulated NextEra Energy Resources business and at the limited partnership, NextEra Energy Partners.

"In a rising interest-rate environment, we prefer utility stocks with above-average dividend growth potential. While NEE trades in line with peers based on P/E, we believe that a premium valuation is warranted based on the company's consistent EPS and dividend growth," analyst Jim Kelleher wrote in a note.

NextEra recently raised its quarterly dividend to $0.87 per share, or $3.48 annually, for a yield of about 2.9 percent. The current payout represents an increase of 13 percent from the prior-year period and implies a 54.8-59.5 percent payout ratio based on projected full-year 2016 earnings.

The company is targeting a payout ratio of 65 percent with projected growth of 12-14 percent over the next three years. Argus' 2016 dividend estimate is $3.48 and $3.80 for 2017.

In addition, Argus' Buy thesis is centered on expectation of solid earnings growth from Florida Power & Light as the economy recovers and the rate base expands.

The analyst also expects NextEra to continue to increase its investment in renewable, while the company continues to reduce risk through new contracts and balance sheet improvements. The company's total 2015-2016renewables development program is greater than 4,000 MW.

Kelleher maintained his 2016 earnings estimate of $6.14 per share, while the company sees EPS of $5.85 - $6.35.

Commenting on the merger with Hawaiian Electric Industries Inc. (NYSE: HE), the analyst said he would not be surprised if the deal falls through due to opposition of governor of Hawaii, David Ige.

At the time of writing, shares of NextEra were down 0.42 percent to $121.24.


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