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Is NextEra Energy, Inc. (NYSE:NEE) overpriced at 8.38x Price To Sales?

in INVESTING IDEAS by

NextEra Energy, Inc. (NYSE:NEE) is currently trading at $75.99, at approximately 92.9% of its 52-week high of $83.34. With the stock price up 39.7% in the last year, investors are worried that the company is getting too expensive. So, is NextEra Energy, Inc. overvalued? In this article, we’ll discuss NextEra Energy, Inc.’s valuation using different valuation models.

Historical Valuation

One of the quickest ways to spot if a company is getting too expensive is to compare the current valuation to its historical one. We can use the price to sales ratio to cut the noise and avoid the volatility of the company’s earnings.

Considering NextEra Energy, Inc.’s latest twelve months revenue/share of $9.28 and using the company’s 5-year average price to sales of 4.77x as a benchmark, we have a fair value of $44.28, which is -41.7% lower than the current price.

With no surprise, we can see that NextEra Energy, Inc.’s price to sales of 8.4x is much higher than its 5-year average of 4.8x, indicating that the company is probably trading in overbought territory. We can easily visualize trends in the company’s fundamentals using the Finbox chart editor, as depicted below.

Source: Finbox Chart’s Engine

Absolute Valuation: NextEra Energy, Inc. DCF Analysis

Using a company’s historical valuation as a benchmark could lead to misleading results if a change in its fundamentals justifies the current valuation. So it’s always preferable to take into account the latest financial forecast and analyze the company with an absolute valuation model.

So, let’s analyze NextEra Energy, Inc. with a 5Y DCF analysis (EBITDA exit method). Using the latest 5Y revenue forecast CAGR of 4.3%, an average EBITDA margin forecast of 60.8%, a discount rate of 7.0%, and a terminal EBITDA multiple of 15.1x, we get a fair value of $82.2.

So, Is NextEra Energy, Inc. Overvalued?

Relying only on one or two financial models to determine a company’s fair value is never a good idea. It’s always preferable to use different models before coming to hasty conclusions.

The Finbox Fair Value Estimate is an advanced financial modeling technology that uses eleven different models to estimate the fair value of a stock and lets you get a company’s fair value at your fingertips. All the models are based on the same data utilized by the biggest investment banks and money managers in the world.

According to the estimate, NextEra Energy, Inc.’s fair value is $60.56, representing a -22.1% downside from the current price. Below are the fair value estimates for each model.

Source: Finbox Fair Value Estimates

Company’s Profile: NextEra Energy, Inc.

NextEra Energy, Inc., through its subsidiaries, generates, transmits, and distributes electric power in North America. The company generates electricity through wind, solar, nuclear, coal, oil, and natural gas facilities. It also develops, constructs, and operates long-term contracted assets with a focus on renewable generation facilities, natural gas pipelines, and battery storage projects; and owns, develops, constructs, manages, and operates electric generation facilities in wholesale energy markets. In addition, the company engages in the energy-related commodity marketing and trading activities. The company was formerly known as FPL Group, Inc. and changed its name to NextEra Energy, Inc. in May 2010. NextEra Energy, Inc. was founded in 1925 and is headquartered in Juno Beach, Florida

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