NextEra Energy vs. Dominion Energy: Which Renewable Energy Supply to Choose?

As consumers in the United States become more climate and environmentally conscious, they are also making more eco-friendly choices, including choosing renewable energy sources that can be replenished naturally.

This upward trend is indicated by the fact that renewable energy consumption in the US increased for the fifth year in a row last year, accounting for 12% of total energy consumption in the United States, according to a report from the US Energy Information Administration (EIA). ).

Using the TipRanks Stock Comparison: let’s compare two renewable energy companies, NextEra Energy and Dominion Energy, and see what Wall Street analysts think about these stocks.

The author is neutral on both NextEra Energy and Dominion Energy.

Next Era Energy (NEW)

NextEra Energy is an electricity and infrastructure giant in North America and has two main businesses, Florida Power and Light (FPL), which include Gulf Power and NEER. FPL is the largest electric utility in the state of Florida while NEER is a renewable energy generator.

In the second quarter, the company reported mixed results. The company posted revenue of $3.93 billion, which fell short of the consensus estimate of $4.97 billion. Adjusted earnings came in at $0.71 per share, exceeding analyst expectations of $0.68 per share. The company reported earnings of $0.65 per share for the same period last year.

In FY21, NO expects adjusted EPS to reach between $2.40 and $2.54 per share and expects EPS to grow between 6% and 8% between 2022 and 2023.

Jim Robo, Chairman and CEO of NextEra Energy said: “In the second quarter, NextEra Energy Resources continued to capitalize on the great market opportunity for low-cost renewables and storage, adding approximately 1,840 megawatts to its order book since the release of our first-quarter financial results in April.”

Robo also added that FPL plans to install more than 15 million solar panels early next year, which would result in FPL completing more than half of its ’30-by-30′ plan. In 2019, NO had announced that FPL would install more than 30 million solar panels by 2030.

This plan was given another boost last month when FPL announced a four-year settlement agreement, developed in conjunction with the Florida State consumer attorney, Florida Office of Public Counsel and other parties. This agreement would mean that new rates will be introduced from next year.

According to FPL, the agreement would mean that residential customer bills will remain “well below the national average until 2025”. (See NextEra Energy Stock Chart on TipRanks)

The settlement agreement was positively reviewed by analyst BMO Capital Markets James M. Thalacker, who believes the announcement “could help reduce regulatory overhang, as the strong support from signatories would mean the company was able to strike an appropriate balance between environmental interests, customers and shareholders.”

The analyst is bullish, with a buy recommendation and a price target of $91 (8.4% up) for the stock. Thalacker believes the stock “justifies a premium valuation given its fundamental and thematic drivers, including one of the world’s largest renewables backlogs and a favorable investment recovery through regulatory recovery mechanisms.”

As for the rest of the street, analysts are bullish on NextEra Energy, with a Strong Buy consensus based on 7 Buys and 2 Holds.

The average NextEra Energy price target of $89.22 implies upside potential of about 6.2% from current levels.

Dominion Energy (NS)

Dominion Energy is a natural gas and electricity supplier serving customers in the Rocky Mountain and eastern regions of the US. The company’s operating segments include Dominion Energy Virginia, Gas Distribution, Dominion Energy South Carolina and Contracted Assets.

In the second quarter, the company’s results lagged analysts’ estimates. Adjusted earnings per share (EPS) came in at $0.76, slightly lower than Street’s estimate of $0.77, but higher than a year ago’s earnings per share of $0.73. Dominion’s revenue declined 2.2% year-over-year to $3.04 billion, lower than analysts’ expectations of $3.76 billion.

In the third quarter, Dominion expects adjusted earnings per share to be between $0.95 and $1.10. In addition, it expects adjusted earnings per share for FY21 to be between $3.70 and $4.

Even though Q2 results came in below Street’s estimates, what makes the stock attractive, according to Evercore ISI analyst? Durgesh Chopra, is Dominion’s compelling Environment and Social Governance (ESG) story.

The analyst is optimistic about the stock, with a buy rating and a price target of $82 (5.3% up) for the stock.

Last year, the company unveiled a $32 billion growth capital plan over five years. Under this plan, Dominion plans to invest approximately 82% of this capital in reducing emissions and enabling investment. (See Dominion Energy Stock Chart on TipRanks)

As a result of this plan, the company expects to grow its EPS by 6.5% each year through 2025, while dividends are expected to grow by 6% per annum, aiming for a dividend payout ratio of 65%. The dividend payout ratio indicates how much of a company’s net income is paid out as a dividend.

The company’s management stated in its second quarter earnings call, “Together, Dominion Energy offers a total return of approximately 10% based on a pure state-regulated utility profile, operating in key regions of the country.”

Analyst Chopra considers this updated capital plan “the largest regulated decarbonization initiative in our coverage universe.”

The analyst also sees the sale of its gas transportation and storage assets as another big plus for the stock.

In July of this year, Dominion announced the termination of the sale of Questar Pipelines to Berkshire Hathaway Energy, a subsidiary of Berkshire Hathaway (BRK.A). Questar Pipelines is one of the company’s gas transportation and storage assets.

The decision to terminate the sale was made due to “ongoing uncertainty related to obtaining Federal Trade Commission clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.”

However, Dominion plans to start a competitive process for the sale of Questar Pipeline and plans to complete the sale by the end of this year.

The company added that last year’s termination “will not affect the sale of gas transmission and storage assets to Berkshire Hathaway Energy completed in November,” which represented approximately 80% of the original transaction value.

According to Chopra, the sale of the pipeline will “enable the company to generate 85-90% of its revenues from state-regulated utilities,” which could lead to “reduction in business risk and a stronger balance sheet.”

As for the rest of the street, analysts are cautiously optimistic about Dominion, with a moderate buy consensus, based on 4 buys and 3 held.

The average Dominion Energy price target of $84.86 implies upside potential of about 9% from current levels.

Bottom Line

While analysts are optimistic about NO, they are cautiously optimistic about Dominion Energy. However, based on the upside potential over the next 12 months, Dominion appears to be a better buy.

Disclosure: At the time of publication, Shrilekha Pethe held no position in any of the securities mentioned in this article.

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