Barclays sustains underweight rating on NEP, steady stock target on strategy

Published 03/10/2024, 14:50
Barclays sustains underweight rating on NEP, steady stock target on strategy

On Thursday, Barclays continued to express caution regarding NextEra Energy Partners (NYSE:NEP) shares, maintaining an Underweight rating and a $25.00 price target for the stock. The firm's stance is influenced by their perspective on the company's future financial strategy, particularly concerning its distributions.

Barclays points to the likelihood of NextEra Energy Partners needing to reduce its distribution sooner than expected. The firm had initially anticipated a potential cut in distributions to occur at the beginning of 2027. However, the current analysis suggests that this adjustment could be necessary as early as the first quarter of 2025 if the company decides to align its distributions with its cash flow.

According to Barclays, if NextEra Energy Partners opts to decrease its distribution in the first quarter of 2025, the reduction could be around 50%. The percentage required for the cut increases incrementally with each passing year—55% if done in the first quarter of 2026, 65% in the first quarter of 2027, 75% in the first quarter of 2028, and up to 95% in the first quarter of 2029.

The firm's analysis highlights that with a current payout ratio hovering around the 90% mark, a significant reduction in distribution is necessary for NextEra Energy Partners. This step is crucial for the company to begin accumulating cash on its balance sheet. The accumulated funds will be required to meet the upcoming $3.7 billion of CEPF payments starting in 2027.

In other recent news, NextEra Energy Partners has been in the spotlight due to a series of financial developments. Jefferies has initiated a 'Buy' rating on the company's stock, focusing on its renewable energy capacity and financial strategies. This comes despite the company's impending challenge of addressing $3.75 billion in Customer Equity Participation Fund buyouts between 2025 and 2032, which could lead to a significant reduction in dividends for shareholders.

Conversely, Morgan Stanley downgraded NextEra Energy Partners from Equalweight to Underweight due to concerns about the company's financing capabilities, especially regarding its buyout obligations and funding of new growth investments. This downgrade also reflects the anticipation of a significant cut in the company's distributions by the first quarter of 2027.

Despite these financial challenges, NextEra Energy Partners, along with its affiliate NextEra Energy Inc (NYSE:NEE)., reported robust growth in the second quarter of 2024. The company's earnings increased by over 9% year-over-year and adjusted earnings per share rose by 9.4%. This growth was influenced by the company's commitment to low-cost solar generation and battery storage, primarily through Florida Power & Light Company, which resulted in significant customer savings and industry-leading reliability.

Lastly, NextEra Energy's strategic partnerships with GE and Blackstone (NYSE:BX) have positioned it well for sustained growth in the renewable sector. The company's outlook suggests a continued strong performance with a focus on low-cost clean energy and storage solutions. Capital investments are expected to surpass $3 billion-$4 billion over the next four years. These are the recent developments shaping the future of NextEra Energy.

InvestingPro Insights

Recent data from InvestingPro provides additional context to Barclays' cautious stance on NextEra Energy Partners (NYSE:NEP). Despite the firm's concerns about potential distribution cuts, NEP currently boasts a significant dividend yield of 13.58%, with a dividend growth rate of 7.42% over the last twelve months. This aligns with an InvestingPro Tip noting that NEP "has raised its dividend for 10 consecutive years."

However, the company's financial health presents a mixed picture. While NEP's revenue growth stands at an impressive 34.18% for the last twelve months, the company was not profitable during this period, as highlighted by another InvestingPro Tip. This supports Barclays' concerns about the sustainability of current distribution levels.

The market seems to be pricing in some of these concerns, with NEP trading at a Price to Book ratio of 0.7, potentially indicating undervaluation. Investors seeking a more comprehensive analysis can access 7 additional InvestingPro Tips for NEP, offering deeper insights into the company's financial position and market performance.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2025 - Fusion Media Limited. All Rights Reserved.