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Morningstar | NextEra Energy Continues to Deliver on Industry-Leading Growth Profile; Reports 2Q Earnings

We are reaffirming our $155 per share fair value estimate, along with our narrow economic moat and stable moat trend ratings, after NextEra Energy reported second-quarter operating earnings of $2.11 per share, compared with $1.86 in the year-ago period.

Management reaffirmed its 2018 EPS guidance of $7.45-$7.95, in line with our estimate. We continue to forecast that NextEra Energy will attain the top end of its 6%-8% growth expectations through 2021, supporting our forecast for an industry-leading 12% annualized dividend growth.

NEER continues its impressive build-out of its renewable energy backlog, adding more than 1,620 megawatts of renewable energy capacity to its backlog, including wind repowering. Management added 1,000 MW in the first quarter. We remain confident NextEra will deliver at the high end of its planned development range of 10.1 gigawatts to 16.5 GW. The company also booked two additional solar-plus-storage products, which includes solar plus battery storage. We expect this to be a significant growth driver for NEER early- to mid-next decade.

FP&L continues to benefit from an industry-leading regulatory environment. Regulatory capital in the quarter grew nearly 13%, with an allowed return on equity of 11.5% for the past 12 months. Construction of the 1,750 MW Okeechobee Clean Energy center remains on track for a mid-2019 service date. The company's approved 300 MW of solar under the highly constructive solar base rate adjustment regulation is progressing well. We think this is the early innings solar investment opportunities for FP&L, part of unit's 10-year plan calling for more than 3,200 MW of solar.

During the quarter, NextEra entered into an agreement to acquire Southern Company's Gulf Power, Florida City Gas, and natural gas assets Plant Oleander and Stanton Energy Center (65% ownership interest) for $6.475 billion, which includes the assumption of $1.4 billion in debt. Management expects Florida City Gas to close early next week, and is on track to close Gulf Power in the first half of next year. Strategically, we continue to like the acquisition, as the acquired assets align well with NextEra's Florida Power & Light, leaving ample opportunity for operating efficiencies and capital growth opportunities. Additionally, the acquisition boosts NextEra Energy's regulated earnings mix in Florida, which we believe is one of the best current regulatory environments for investor-owned utilities.