Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does NextEra Energy fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell NextEra's story, and we'll be grading the quality of that story in several ways:

  • Growth: are profits, margins, and free cash flow all increasing?
  • Valuation: is share price growing in line with earnings per share?
  • Opportunities: is return on equity increasing while debt to equity declines?
  • Dividends: are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at NextEra's key statistics:


NEE Total Return Price Chart

NEE Total Return Price data by YCharts

Passing Criteria

3-Year* Change

Grade

Revenue growth > 30%

(6.6%)

Fail

Improving profit margin

(0.3%)

Fail

Free cash flow growth > Net income growth

(57.8%) vs. (6.9%)

Fail

Improving EPS

(10.1%)

Fail

Stock growth (+ 15%) < EPS growth

86% vs. (10.1%)

Fail

Source: YCharts. * Period begins at end of Q2 2010.

NEE Return on Equity Chart

NEE Return on Equity data by YCharts

Passing Criteria

3-Year* Change

Grade

Improving return on equity

(24.4%)

Fail

Declining debt to equity

13.9%

Fail

Dividend growth > 25%

32%

Pass

Free cash flow payout ratio < 50%

283.7%

Fail

Source: YCharts. * Period begins at end of Q2 2010.

How we got here and where we're going
Things look pretty ugly for NextEra today, as it mustered only one out of nine possible passing grades. Declining revenues and earnings have really hurt NextEra, which has been unable to leverage any sort of fundamental growth out of energy prices over the last few years. Is there any hope left for NextEra today? Let's dig a little deeper to find out.

Declining sales in utilities, which is a regulated industry, has affected other energy producers as well, but that hasn't stopped investors from flooding into a sector prized for its perceived stability. My fellow Fool Justin Loiseau notes that NextEra has completed the modernization of its Florida nuclear plants, with a total gain in energy production capacity of around 500 megawatts. The company will leverage economies of scale from these upgrades to save more than $100 million in the next year -- and hopefully will be able to improve its free cash flow metrics as well, now that this massive project is behind it.

NextEra has also been aggressively investing in expanding its capabilities across the U.S. NextEra's subsidiary Florida Power & Light recently agreed to setup a new $3 billion joint-venture with Spectra Energy to improve Florida's natural gas infrastructure. The $3 billion project is expected to begin in 2016 and take at least a year to complete. NextEra will contribute around $1 billion to the joint venture, along with $550 million of that going toward connecting one of its natural gas-fired plants to Florida's central pipeline hub. Florida Power's President cited $6 billion in retail savings from nat-gas prices since 2001 in his statement on the project, and if the new pipeline construction saves even a tenth as much for NextEra in the decade to come, it could prove worthwhile. Pipelines last a lot longer than ten years, after all.

Putting the pieces together
Today, NextEra has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

If you're an investor who prefers returns to rhetoric, you'll want to read The Motley Fool's new free report "5 Dividend Myths... Busted!" In it, you'll learn which stocks provide premium growth and whether bigger dividends are better. Click here to keep reading.

The article Is NextEra Energy Destined for Greatness? originally appeared on Fool.com.

Fool contributor Alex Planes has no position in any stocks mentioned. The Motley Fool recommends Spectra Energy.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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