NextEra Energy Analyst: Renewables Growth, Low Interest Rates Are Bullish Trends For Utility

Low interest rates and strong buyer interest will drive long-term growth in NextEra Energy Inc’s NEE renewables business, according to Morgan Stanley.

The Analyst

Stephen Byrd maintained an Overweight rating on NextEra Energy and raised the price target from $207 to $234.

The Thesis

NextEra Energy was the pioneer in U.S. renewables; has consistently enjoyed a leading market share in wind and solar; and return on invested capital has been attractive over an extended timeframe, Byrd said in a Tuesday note. (See his track record here.) 

Of the two businesses, the company’s wind vertical has performed better, generating returns on equity in the high teens, the analyst said, adding that there are multiple barriers to entry in the wind energy space.

Although the ending of tax credits in early 2020 has raised investor concerns around the sustainability of renewables growth in the U.S., the cost of renewable technologies has continued to decline at a rapid pace, he said. 

Investors seem to underappreciate the fact that NextEra Energy is among "the biggest indirect beneficiaries" of a trend of interest rates that remain "lower for longer," Byrd said.

The two powerful trends of long-term renewables growth and low interest rates could drive shareholder value creation, according to Morgan Stanley. 

Price Action

NextEra Energy shares were up 0.11% at $215.63 at the time of publication Tuesday. 

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