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Should Value Investors Consider NextEra Energy (NEP) Stock?

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put NextEra Energy Partners, LP NEP stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, NextEra Energy has a trailing twelve months PE ratio of 19.06, as you can see in the chart below:



This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 20.09. If we focus on the long-term PE trend, NextEra Energy’s current PE level puts it below its midpoint over the past two years. Moreover, the current level is fairly below the highs for this stock, suggesting it might be a good entry point.



Further, the stock’s PE also compares favorably with the Zacks classified Oils-Energy sector’s trailing twelve months PE ratio, which stands at 34.97. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.



However, we should point out that NextEra Energy has a forward PE ratio (price relative to this year’s earnings) of 25.80, so on the ground of the forward earnings estimates, we might say that the company’s share price is likely to appreciate in the near future.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, NextEra Energy has a P/S ratio of about 2.79. This is a bit lower than the S&P 500 average, which comes in at 3.12 right now. However, as we can see in the chart below, this is above the median for this stock in particular over the past few years.



NEP is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.

Broad Value Outlook

In aggregate, NextEra Energy currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes NextEra Energy a solid choice for value investors.

What About the Stock Overall?

Though NextEra Energy might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘D’ and a Momentum score of ‘B’. This gives NEP a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen one estimate go higher in the past sixty days compared to two lower, while the full year estimate has seen one upward and one downward revision in the same time period.

As a result, the current quarter consensus estimate has remained stable in the past two months, while the full year estimate has risen by 3.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.

Bottom Line

NextEra Energy is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (among the bottom 28%) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past one year, the Zacks Oils-Energy: Alternative Energy-Other industry has clearly underperformed the broader market, as you can see below:



So, value investors might want to wait for analyst sentiment and broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.

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