AI And Renewables Will Drive A Resilient Energy Future

Key Takeaways

• Surging demand for electricity and advantages in renewables position NextEra for strong revenue growth and margin expansion over competitors.
  
• Legislative support, project backlog, and regulated utility investments ensure stability, predictable earnings, and sustainable long-term growth.
  
• Phasedown of incentives, rising financing costs, regulatory hurdles, modest utility earnings growth, and decentralized competition threaten NextEra's long-term revenue, margin, and market position.

Catalysts

Through its subsidiaries, generates, transmits, distributes, and sells electric power to retail and wholesale customers in North America.

• Accelerating and sustained demand growth for electricity-driven by AI, data center expansion, and electrification of sectors like transportation and heating-positions NextEra to grow volumes and capture higher average revenue per MWh as utilities compete to provide essential infrastructure for hyperscalers and traditional customers. This is expected to support robust revenue growth.
  
• Declining costs and rapid deployment timelines of renewables (solar, wind, and especially battery storage), along with NextEra's unrivaled supply chain and perpetual construction capabilities, allow the company to extract significant pricing and operational advantages over competitors, helping to expand margins and accelerate earnings as cost pressures mount elsewhere in the sector.
  
• Recently enacted federal legislation (OBBB) and safe harbor provisions provide multi-year tax and regulatory visibility through at least 2029 for wind, solar, and storage projects, which, combined with a large existing project backlog and strong balance sheet, allow NextEra to secure project returns, support dividend growth, and maintain healthy net margins despite broader policy uncertainty.
  
• NextEra's scale and ongoing capital investment in regulated utility operations (Florida Power & Light)-supported by Florida's constructive regulatory environment-are set to drive a larger, more predictable rate base and consistent earnings streams, with relatively stable and above-average returns on equity adding stability to net income.
  
• Strategic bets in energy storage, grid modernization, and nuclear/SMR development, amid growing national focus on grid reliability and extreme weather resilience, create high-margin growth avenues and help the company offset the eventual phase-out of renewable tax credits-supporting the sustainability of long-term earnings and cash flow growth.

NextEra Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming NextEra Energy's revenue will grow by 11.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 22.9% today to 26.3% in 3 years time.
• Analysts expect earnings to reach $9.4 billion (and earnings per share of $4.37) by about September 2028, up from $5.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.9x on those 2028 earnings, down from 24.4x today. This future PE is greater than the current PE for the US Electric Utilities industry at 19.9x.
• Analysts expect the number of shares outstanding to grow by 0.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

NextEra Energy Future Earnings Per Share Growth

Risks

• Phasedown of wind and solar tax credits under the One Big Beautiful Bill Act, combined with policy uncertainty from executive orders and potential future regulatory changes, could reduce the long-term availability of key financial incentives for NextEra's renewables, potentially impacting future project economics, revenue growth, and net margins.
  
• Heightened interest rates and higher project financing costs were noted as increasing; if these persist or worsen, they could squeeze returns on capital-intensive infrastructure, drive up interest expenses (as seen in the recent $0.06 per share hit), and lower net income, especially given sustained high levels of planned capital investment.
  
• Increasing regulatory and permitting challenges at the federal level-such as new Department of Interior review layers and evolving federal permitting priorities-noted in relation to siting renewables and potential exposure on federal lands, may delay or raise costs to bring projects online, slowing revenue realization and constraining growth.
  
• Evidence of only modest EPS growth at regulated utility Florida Power & Light (FPL) despite high capital employed (earnings grew <3.5% while capital employed grew ~8%), suggests that regulated returns are flattening, and further rate case or regulatory setbacks could pressure future earnings stability for this substantial NextEra subsidiary.
  
• The potential for greater competition and decentralized power-such as increased distributed energy resources (e.g., rooftop solar) and smaller developers exiting the market as incentives phase down-could eventually erode NextEra's market share and pricing power, especially into and beyond 2029, with long-term consequences for revenue and margin growth in both regulated and competitive businesses.

Valuation

• The analysts have a consensus price target of $82.294 for NextEra Energy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $103.0, and the most bearish reporting a price target of just $52.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $35.9 billion, earnings will come to $9.4 billion, and it would be trading on a PE ratio of 21.9x, assuming you use a discount rate of 6.8%.
• Given the current share price of $70.07, the analyst price target of $82.29 is 14.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.