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    Beta Investment Beta Investment Document Transcript

    • STOCK REPORT NextEra Energy, Inc. (NEE) December 10th, 2013 Ms. Jenna Ecker Ecke0204@d.umn.edu Ms Ashley Boecker Boeck069@d.umn.edu Sector: Utilities Subindustry: Electric Utilities Investment Objective: Outperform Investment Horizon: 12-24Months Revenue FY12A FY13E FY14E Earnings per Share $33.07 $35.85 $37.88 FY12A FY13E FY14E $4.56 $4.76 $5.29 FY12A FY13E FY14E 15.1x 17.9x 16.6x P/E Ratios Trading Data Fiscal Year-End 52-Week Range Dec 31 Hi $89.75 Lo $67.75 Market Cap Shares Out Float $36.45B 431M 428.5M Book Value Per Share Current Dividend Share(mrq) Dividend Yield Est. 1-Yr EPS Growth Total Debt/Equity Price/Book (mrq) Avg. 10-day Vol. 12 month ROE(ttm) Institutional Holdings $40.42 $2.64 3.00% 11.13% 165.6 2.07x 1.9M 10.94% 70% S&P 500 NASDAQ Rererrr $1,808.37 $4,068.75 *Numbers based on close 12/9/2013 INVESTMENT HIGHLIGHTS Leader in Renewable Energy NextEra Energy is nationally recognized as a leading clean energy provider. Approximately 95% of NEE’s electricity is derived from clean or renewable sources, including wind, solar, natural gas and nuclear energy. With 116 renewable projects NextEra is the largest generator of wind and solar power in North America. To date, NextEra Energy Resources has invested more than $15 billion in its wind business. NextEra Energy Resources plans to invest approximately $6 billion in new wind and solar projects by the end of 2014, which is expected to expand the company’s position as the country’s renewables leader. Expanding Capital Investments NextEra Energy is putting an aggressive emphasis on increasing their capital investments over the next four years in all of their business segments. Florida Power & Light has projected baseline capital expenditures to total $9.2 billion from 2013 to 2016 with an additional $4 billion to $5 billion of incremental capital expenditures over the same amount of time. These planned expenditures include upgrades of current assets, infrastructure investments, natural gas pipeline expansion, solar investments and improvements to the incremental storm hardening program. NEER also has a promising outlook in capital expenditures with a strong backlog of wind and solar projects as well as a near-term pipeline of contracted renewable projects. As the competitive environment in the transmission area grows, NextEra has also planned to deploy $4 billion to expand and renovate their transmission lines. Taking all the segments into account, NextEra Energy plans to spend an estimated $23 billion in capital expenditures through 2016. Diversified Portfolio NextEra Energy has a well-diversified portfolio with a fuel mix consisting of wind, natural gas, nuclear energy, solar and other energies. Wind energy is very attractive right now because it is quick to market, has a low and competitive price and has regulatory initiatives. NextEra Energy has also incorporated the cleanest burning fossil fuel with natural gas facilities currently in five states. NEE’s Nuclear Energy plants produce virtually no air emissions and the facilities have excellent safety records. By 2016, NextEra Energy plans to bring roughly 900MW of new solar projects into service. COMPANY DESCRIPTION NextEra Energy, Inc., through its subsidiaries, engages in the generation, transmission, distribution, and sale of electric energy in the United States and Canada. The company is involved in the generation of renewable energy from wind and solar projects making up 27% of revenue. It also generates electricity through natural gas, nuclear, oil and coal, and hydro power plants. The company serves approximately 8.9 million people through approximately 4.6 million customer accounts in the east and lower west coasts of Florida accounting for 71% of revenue. In addition, it leases wholesale fiber-optic network capacity and dark fiber to telephone, wireless, Internet, and other telecommunications companies contributing to less than 2% of revenue. As of December 31, 2011, NextEra Energy, Inc. had approximately 41,000 megawatts of generating capacity. The company was formerly known as FPL Group, Inc. and changed its name to NextEra Energy, Inc. in May 2008. NextEra Energy, Inc. was founded in 1925 and is headquartered in Juno Beach, Florida. Additional information is available on request. The analyst’s opinion of the securities featured is conveyed using a Stock Rating (Buy, Hold, Sell) and a Risk Profile (Low, High, Moderate). Definitions of ratings and profiles can be found on the last page of this report. The information and opinions presented in this report were prepared by the Bulldog Research Group, the research arm of the LSBE Financial Markets Program at the University of Minnesota Duluth. Much of the content was obtained through Reuters’ Bridge financial software. The analyst making the above recommendation may also manage discretionary accounts holding the above referenced security or securities. Compensation for the analyst is partially based on the performance of the underlying assets in their discretionary accounts. If you have questions concerning this report, please contact Ashley Boecker at (952)388-4332 or Jenna Ecker at (651)792-5259. Important disclosures continue on the last page. 1 NYSE: NEE $84.11 (12/09/2013) Rated1: Buy Risk Profile: Low Target Price: $95.00
    • Bulldog Fund Equity Research STOCK REPORT INDUSTRY OUTLOOK Themes Phasing Out Coal Plants: In 1970, the U.S. Congress passed the Clean Air Act, which regulated the emission of sulfur dioxide (SO2), among other forms of pollution. SO2 contributes strongly to acid rain, and causes or exacerbates respiratory illnesses. However, the legislation allowed for exemptions for older power plants. This legislation has been strengthened since then: in 1977, the New Source Review increased compliance by states, while the EPA's Clean Air Interstate Rule, passed in 2005, requires a 57% cut in U.S. SO2emissions by 2015.For the twelve months ending in March 2013, United States' coal plants produced 1,517,203 gigawatt hours of electricity, or 37.4% of total U.S. electricity production. At the peak year of coal's contribution to U.S. power production, 1988, coal produced 57% of U.S. power. Coal's share in power production has fallen due to major increases in production from natural gas and smaller increases from nuclear and wind. Increasing Natural Gas Usage: Among the utility services, natural gas usage is increasing due to its abundance, cheap price and clean-burning nature. With more than 71 million domestic natural gas customers, the industry has enough room for nearly 1,200 natural gas utilities presently operating in the country. Natural gas combustion produces almost 45% fewer carbon dioxide emissions than coal, emits lower levels of nitrogen oxides and particulates, and produces virtually no sulfur dioxide and mercury emissions. The lower levels of these emissions mean that the use of natural gas does not contribute significantly to smog or acid rain formation. In addition, because natural gas boilers do not need the scrubbers required by coal-fired power plants to reduce SO2 emissions, natural gas plants create much less toxic sludge. Continued Growth in Renewable & Alternative Energy: Environmental regulations are mostly related to air quality, including greenhouse gases, but also cover water quality and land quality. These regulations create a great deal of uncertainty for utility planning and complicate decision-making about the future operation of existing power plants. Additional capital investment in fossil-fueled power plants is expected to be required.Currently 29 states have the Renewable Portfolio Standards; this is the percentage amount of each company’s portfolio that must be invested in renewables by a specified future date. Investment in electricity from the wind, sun, waves and biomass grew to $187 billion last year, compared with $157 billion for natural gas, oil and coal. It is estimated that renewables will contribute more to a low-carbon energy supply by 2050 than nuclear power or fossil fuels using carbon capture and storage. Investment in Infrastructure: Replacement of aging infrastructure and construction of new infrastructure is a necessity for public safety and healthy economic growth. However, there is a big concern whether sufficient capital can be allocated to meet the infrastructure need. It is well acknowledged that utility infrastructure in the United States is aging and large amount of investments is needed in order to meet the infrastructure demand. It is estimated that, by 2030, the electric utility industry will need $1.5 trillion to $2 trillion for infrastructure investment. Competition NextEra Energy participates in the generation, transmission, distribution and sales of electricity in the United States and Canada through its main subsidiaries: Florida Power & Light(FPL) and NextEra Energy Resources (NEER). Due to the company’s regulatory nature, FPL faces minimal direct competition as a regulated electric company. However, their presence in Florida does allow customers to have a certain amount of discretion in choosing electricity providers, but competition and customer switching to alternative suppliers has been limited. The additional competitive pressures resulting from retail access could lead to a loss of customers further down the road. Market Cap FY13E Revenue FY14E Revenue FY13E EPS FY14E EPS P/E (ttm) ROA (ttm) ROE (ttm) Operating Margin (ttm) Debt/Equity (mrq) Dividend Yield NextEra Energy, Inc. 36.22B $15,453 $16,326 $4.74 $5.32 17.76x 3.51% 10.94% 24.41% 165.6 3.00% The Southern Co. 36.19B $17,005 $17,698 $1.84 $2.80 22.32x 3.23% 8.14% 19.39% 116.08 4.90% TECO Energy, Inc. 3.75B $2,861 $2,972 $0.93 $1.08 20.48x 3.95% 8.71% 16.61% 125.7 5.10% INVESTMENT THESIS Leader in Clean Energy Nationally recognized as a leading clean energy provider, NextEra Energy Resources has a portfolio of facilities, totaling more than 17,770 net megawatts of generating capacity in the United States and Canada. Approximately 95% of electricity is derived from clean or renewable sources, including wind, solar, natural gas and nuclear energy. NextEra Energy is the largest generator of wind and solar power in North America with 116 renewable projects currently in operation. Not only does the company incorporate environmental stewardship into the design, construction, operation and maintenance of facilities, NEE’s leadership is also committed to ensuring that the growing demand for power is met in the most environmentally responsible manner. As a result, the company has achieved a reduction in carbon dioxide emissions and other pollutants through the use of renewable energy resources.In 2012, NextEra Energy added roughly 1,500 megawatts of new wind generation, more than any company had ever accomplished before. In all, NEE now operates more than 10,000 net megawatts of wind capacity in 24 states and four Canadian provinces. To date, NextEra Energy Resources has invested more than $15 billion in its wind business. NextEra Energy co-owns and operates seven solar plants in California’s Mojave Desert. In all, the business operates 360 megawatts of solar power, which is capable of meeting the energy needs of more than 230,000 homes at peak production.NextEra Energy was named No. 1 overall among electric and gas utilities on Fortune Magazine’s 2013 list of the World’s Most Admired Companies. For the fourth straight year, NextEra Energy was named to the Dow Jones Sustainability Index for corporate sustainability. For an industry-record ninth consecutive year, FLP earned the ServiceOne Award. Lastly for the sixth year, NextEra Energy has been named one of the World’s Most Ethical Companies by the Ethisphere Institute.
    • Bulldog Fund Equity Research STOCK REPORT In summary, NextEra Energy Resources stands for clean energy. NEER has invested - and will continue to invest - in a clean-energy tomorrow for future generations. NextEra Energy Resources expertise is in wholesale and retail electricity and project development and construction, as well as in offering customers the energy products and services they need. Expanding Capital Investments Maintaining modern infrastructure is imperative for the United States. To preserve the high-quality, reliable service customers expect and deserve, NextEra Energy plans to invest up to $26 billion in needed infrastructure projects that will renew and modernize the grid system, meet new environmental standards, as well as add clean, renewable energy to their fleet. Florida Power & Light (FPL): FPL has projected baseline capital expenditures to total $9.2 billion with an additional $4 to $5 billion in incremental capital expenditures between 2013 and 2016. Current modernization of Riviera Beach and Port Everglades are both running on time and on budget to be completed in mid-2014 and early 2016, respectively. FPL also plans to continue investing in strengthening the grid against storms through additional incremental storm hardening feeders which will maximize customer benefit. In addition to feeders, FPL aims to improve customer reliability of Automated Feeder Switches (AFS) which reduces outages. In early November, FPL’s natural gas transportation capacity contracts that support a new pipeline into the state. The last segment the company has put forward-looking emphasis on is their exploration to invest in solar projects to increase fuel diversity. Specifically, FPL is interested in three projects: Manatee Solar, Babcock Ranch and DeSoto Solar Expansion. Together these three would offer an additional 390 MW of new solar power. NextEra Energy Resources (NEER): Opportunities seem endless for NEER with a strong backlog of solar and wind projects. During 3Q13, NEER brought into service a Canadian wind project with a capacity of roughly 125 MW and they expect the remaining 475 MW to enter service in 2014 and 2015. NEER also expects 175 MW of new wind and 900 MW of U.S. solar projects to continue into 2014. The team recently signed a PPA for a 200MW project which is expected to come into service in late 2014, bringing the company’s total contracted wind development portfolio to approximately 1,175 megawatts. Similar to FPL, NEER is working vigorously to grow a presence insolar business. NextEra Energy Resources has recently entered into an agreement to purchase a development project from First Solar which will have a capacity of approximately 250 MW and operate under a 20-year PPA. This project still has obstacles to achieve before it can be considered complete, but once it is done the portfolio of NEER’s incremental solar would total about 1,100MW of U.S. contracted solar projects. NextEra Energy Transmission (NEET): NEET is expecting increase contributions from their Lone Star Transmission that went into service this past spring. In addition, NextEra was recently designated by the Ontario Energy Board to develop the East-West Tie Line Transmission project with two other companies. NEET has also stated a planned contribution of $4 billion for investment opportunities in Alberta, Hawaii, New England, New York and Ontario which could total $15 to $30 billion through 2020 if executed. In summary, Florida Power & Light’s baseline capital expenditures and modernization projects combined with NextEra Energy Resources’ strong backlog and NextEra Energy Transmission’s expanded regional footprint has created a very promising outlook for NEE. The combined future positions of these three segments offer above average and highly visible growth for NextEra Energy through 2016. Diversified Portfolio NextEra Energy has a well-diversified portfolio with a fuel mix consisting of wind, natural gas, nuclear energy, solar and other energies. WIND ENERGY- One of NextEra Energy Resources’ competitive advantage is in wind energy development. While North America’s power demands continue to grow, so does interest in clean, renewable and affordable wind energy. NextEra Energy Resources is helping develop wind energy facilities and is the North American leader in wind energy generation. Wind energy is quick to market, from groundbreaking to commercial operation it usually takes six to nine months. The cost of wind has decreased significantly and the cost is competitive with other forms of power generation. In addition there is no fuel cost volatility. NextEra Energy is finding that more and more customers are requesting the option of purchasing clean renewable energy to meet their electricity needs. NATURAL GAS- NextEra Energy has incorporated the cleanest burning fossil fuel with natural gas facilities currently in five states. Often NEE installs combined-cycle technology, which uses waste heat to drive an additional power generator for increased energy efficiency and lower emissions than conventional fossil-fueled units. NUCLEAR ENERGY- NextEra Energy Resources added clean nuclear energy into the fuel mix through a majority interest in the Seabrook Station in New Hampshire, a 70% interest in the Duane Arnold Energy Center in Iowa, and full ownership of Point Beach Nuclear Plant in Wisconsin. Nuclear power plants produce virtually no air emissions during operation, and facilities that have excellent safety records and are focused on reliable operation. SOLAR/OTHER ENERGY- NextEra Energy Resources also generates solar energy through operations at the Solar Electric Generating Systems (SEGS) in California’s Mojave Desert as well as at facilities in New Jersey, New Mexico and Canada. In all, the company operates an unprecedented 360 MW, with ownership of approximately 198 megawatts of solar generation. The company also expects to bring roughly 900 MW of new solar projects into service from 2012 through 2016. This includes its 50% portion of the Desert Sunlight project and 100% of the Genesis solar thermal project, both in California and the Termosol Solar Project in Spain.
    • Bulldog Fund Equity Research STOCK REPORT In summary, wind energy is very attractive right now because it is quick to market, has a low and competitive price and has regulatory initiatives. NextEra Energy has also incorporated the cleanest burning fossil fuel with natural gas facilities currently in five states. NEE’s Nuclear Energy plants produce virtually no air emissions during operation and the facilities have excellent safety records. By 2016 NextEra Energy plans to bring roughly 900MW of new solar projects into service. TECHNICAL OPINION This threeyear stock chart showcases NEE’ssignificant uptrend sinceAugust of2011. In the past 52 weeks, shares of NextEra Energy have traded between $67.75 and $89.75 and are now at $84.11, which is 24% above the low price. In the last five trading sessions, the 50-day moving average has climbed 0.6% while the 200day moving average has risen 0.4%.We are very bullish regarding NextEra Energy and believe this uptrend will continue throughout our investment horizon. CONCLUSION Our recommendation is to BUYNextEra Energybased on the company’s dedication to clean energy, increasing capital expenditures and their diversified portfolio. NextEra Energy’s diversified basket of business not only allows the company to create a strong platform for future growth, but also protects its operations to a significant degree from regulatory risks. We feel NextEra Energy presents a strong growth investment opportunity as well as the investment confidence that comes with a financially stable and sustainability driven company. OBJECTIVES We set a one year price objective of $95 for NEE. We arrived at this price target by carrying forward the current P/E multiple of 18and applying the EPS estimate of $5.25 which is the midpoint of the company’s 2014 estimates. With a dividend yield of 3.00%, this price target represents a price appreciation of 15.95% from the current price of $84.11. RISKS Subject to significant state, local, and federal governmental regulation- Existing environmental regulations may be revised or new laws or regulations may be adopted at the federal or state level which could result in significant additional expenditures, operating restrictions on NEE’s facilities, and increased compliance costs. Moreover, the company is exposed to limited regulatory risk, as it has acquired approval for a multiyear rate deal with permission of several rate case increases for the next four years, and there are no significant pending rate cases. Government Subsidies- Wind and solar renewable energy heavily depend on government subsidies to fund projects. Diminishing government subsidies are a risk to NextEra Energy. Across the utility industry all companies are facing a challenge to begin construction of projects by Dec. 31, 2013 in order to receive government subsidies for those projects. Interest Rate Risk- Although NextEra Energy has deleveraging goals over the next few years, its high debt level makes it especially vulnerable to a rising interest rate environment. This is common among utility companies due to the large amount of infrastructure investments. Sources:Factset, CNBC, Yahoo! Finance seekingalpha.com, Google Finance, EIA.gov, freestockcharts.com,value line report, thestreet.com, and Morningstar. Rating System: Buy: Immediate purchase is recommended. The stock is expected to outperform the general market over the next 12-24 months. Hold:Holding the stock is recommended. The stock has moved out of our preferred buying range, but there is further upside to the share price or the stated objectives at the time of purchase have changed and share appreciation may take another 6-12 months. Sell:The stock has reached the stated price objective and appreciation has been achieved OR certain company fundamentals have changed which warrant investors selling the stock to avoid price decline. Risk Profiles: The Power Houranalysts determine a risk profile for each stock they cover. These risk profiles fall into three general categories: Low, Moderate, or High. Although no specific definitions of each risk profile rating are provided, analysts will take into account business, industry, and market conditions in setting the risk profile. The investments discussed or recommended in this report are not insured by the Federal Deposit Insurance Corporation and may be unsuitable for some investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. Income from investments may fluctuate. The price or value of the investments also may fluctuate. The Power Hour Research Group, including its parent, LSBE Financial Markets Program and their personnel (UMD affiliates) may trade for their own accounts, be on the opposite side of customer orders, and have a position in securities related to issuers mentioned in this report. This material is for general information only, is not suitable for all investors, and is not soliciting any action from any particular investor. © 2013 The Power Hour Corporation, All rights reserved.