NextEra Energy Inc. (NEE) in Juno Beach, Fla., is a leading clean energy company that generates clean, emissions-free electricity from seven commercial nuclear power plants in Florida, New Hampshire, and Wisconsin. The company also owns a competitive clean energy business, NextEra Energy Resources, LLC, which, combined with its affiliated entities, is the world's largest generator of renewable energy from wind and solar and a world leader in battery storage.

The company’s shares have gained 23.4% in price over the past year due to strong investor interest in the renewable energy sector, thanks in-part to President Biden's plans to address climate change.

However, several new companies have entered the space with no product pipelines or the financial strength to capitalize on the nascent sector. Consequently, many analysts feel the clean energy industry has entered a bubble. This, coupled with the stock market's rising volatility, could threaten NEE’s price performance in the near term.

Here is what could shape NEE's performance in the near term:

Industry Tailwinds

Yesterday, President Biden issued an executive order to reduce greenhouse gas emissions to zero by 2050. The order also mandates that the government reduce greenhouse gas emissions by 65% by 2030 and convert its entire fleet of 600,000 vehicles and trucks to zero-emissions vehicles by 2035. Given this backdrop, NEE expects greater demand for its services because its subsidiary, Florida Electricity & Light (FPL), maintains one of the cleanest power-producing fleets in the United States.

Impressive Growth Prospects

Analysts expect NEE's revenues and EPS to rise 2.3% and 9.5%, respectively, year-over-year to $18.42 billion and $2.53 in its fiscal year 2021. In addition, its EPS is expected to rise at a 9.9% CAGR per annum over the next five years. Furthermore, the company has an impressive earnings surprise history; it topped the Street’s EPS estimates in each  of the trailing four quarters.

Mixed Profitability

NEE's 50.5% gross profit margin is 18% higher than the 42.8% industry average. Also, its $7.59 billion in cash from operations is 973.3% higher than the $707 million industry average.

However, NEE's 0.12% trailing-12-months asset turnover ratio  is 42.7% lower than the industry average. Also, its 1.7% and 1.9% respective ROA and ROC are 30.3% and 53.2% lower than the  industry averages. Furthermore, its trailing-12-months levered FCF margin is negative 64.3% compared to the negative 7.8%  industry average.

Premium Valuations

In terms of forward non-GAAP P/E, the stock is currently trading at 35.8x, which is 87.9% higher than the 19.05x industry average. Also, its 12.59x forward EV/Sales multiple x is 180% higher than the 4.5x industry average. Moreover, NEE's 9.4x forward Price/Sales is 276.6% higher than the 2.5x industry average.

POWR Ratings Reflect Uncertainty

NEE has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. NEE has an F grade for Value and a C for Quality. The company's higher than industry valuation is in sync with the Value grade. And NEE's mixed profitability is consistent with the Quality grade.

Of the 57 stocks in the F-rated Utilities – Domestic industry, NEE is ranked #22.

Beyond what I have stated above, one  can view NEE ratings for Growth, Stability, Momentum, and Sentiment here.

Bottom Line

Renewable energy is projected to be the next "big thing" in the energy sector as countries revamp their existing infrastructure and industries move to become carbon neutral. This should bode well for NEE. However, given the heightened industry-wide competition and NEE’s premium valuation and mixed profitability, we believe investors should wait for its prospects to stabilize before investing in the stock.

How Does NextEra Energy Inc. (NEE) Stack Up Against its Peers?

While NEE has an overall C rating, one might want to consider its industry peer, Brookfield Infrastructure Corp. Cl A (BIPC), which has an overall B (Buy) rating.

NEE shares rose $0.02 (+0.02%) in premarket trading Thursday. Year-to-date, NEE has gained 19.37%, versus a 26.81% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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