Shares of NextEra Energy (NYSE:NEE) surged 16.6% through the first half of 2024. That outpaced the strong start of the S&P 500, which gained 14.5%. Add in dividends, and the outperformance was even wider (18.5% versus 15.3%).
Beating the S&P 500 has been a fairly common occurrence for NextEra Energy. It has outperformed the market over the last five-, 10-, and 15-year periods by pretty wide margins. That trend appears poised to continue, making the utility stock continue to look like an attractive buy right now.
Analyzing NextEra Energy's first-half power surge
NextEra Energy had a strong first half of the year. The company grew its adjusted earnings per share by 8.3% in the first quarter. Its Florida-based utility (FPL) benefited from investments to maintain and expand its infrastructure (including growing its leading utility-scale solar energy-generating capacity).
The company also continues to benefit from new customer growth (100,000 added in the quarter, its best in over 15 years). Meanwhile, the company's energy resources segment also had a strong first quarter, powered by the continued addition of new renewable energy projects to its portfolio.
NextEra Energy continues to capitalize on robust renewable energy demand by adding to its backlog or future growth projects. Its energy resources segment added nearly 2.8 gigawatts (GW) of projects to its backlog in the first quarter, the second-best period in its history. It ended the period with over 21.5 GW of projects underway.
The company further enhanced its long-term growth profile in the second quarter by signing a development deal with fellow utility Entergy. The companies will jointly develop up to 4.5 GW of new solar and energy storage projects over the next five years. That adds to the more than 1.7 GW of projects NextEra Energy currently has underway with Entergy.
NextEra Energy also extended its growth outlook in the first half. The company now expects to increase its dividend by around 10% annually through 2026, a two-year extension from its prior forecast. It anticipates growing its adjusted earnings per share by a 6% to 8% annual rate through 2027, an additional year compared to its prior guidance.
Accelerating growth ahead
NextEra Energy has grown briskly over the last decade, even though U.S. power demand has been roughly flat. The company has capitalized on the decarbonization trend, where utilities have retired dirty coal power plants and replaced them with natural gas and renewable energy. That trend should continue as the country decarbonizes the power sector and the broader economy.
On top of that already strong catalyst, the company should benefit from the expected acceleration in U.S. power demand growth. Analysts expect U.S. power demand to surge in the coming years (38% growth by 2040, a fourfold acceleration in demand growth), driven by the electrification of transportation and growing energy consumption by data centers for cloud computing and artificial intelligence (AI). Those catalysts are on track to fuel a threefold increase in renewable energy and storage capacity growth over the next seven years compared to the previous seven years.
Few companies are in a better position to capitalize on the accelerating demand for renewable energy than NextEra. It has the size, scale, and financial capacity to continue leading the charge toward decarbonization and meeting the country's growing energy needs. That should enable it to continue growing at above-average rates for years to come.
This should also give it the power to continue generating strong total returns, even from its currently higher valuation following its first-half surge. NextEra Energy now trades at a forward P/E ratio of about 21 times. While that's not as cheap as earlier this year, it's well below its recent historical average in the 25 to 30 times range.
Still a great stock to buy for the long term
NextEra Energy surged in the first half of this year, powered by its continued strong earnings growth and brightening future growth outlook. Given the accelerating demand for renewable energy, the leading utility has ample power to keep growing at an above-average rate. Put all that together with its still attractive valuation, and it looks like an excellent buy for the long term.
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Matt DiLallo has positions in NextEra Energy. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool has a disclosure policy.