Enphase Energy and NextEra Energy Earnings: How’s the Demand Picture for Renewables?

TradingKeyOct 24, 2024 5:54 AM

TradingKey - If investors were to look at one massive megatrend over the next few decades, the “decarbonisation” trend would be near the top of the list. That’s mainly down to the desire of many large economies – like the US and China – to focus more on renewable energy when generating power.

In the US, there are many companies that serve the growing need for renewable energy. Indeed, the US government’s Energy Information Administration (EIA) projects that wind and solar will lead the growth in US power generation in the next two years, with solar power generation in the country forecast to soar 75% from 2023 to 2025.

Two of the biggest companies involved in the renewables space are Enphase Energy (NASDAQ: ENPH) and NextEra Energy Inc (NYSE: NEE). Both reported earnings this week. Here’s what investors should know about whether the demand picture for renewables is still strong.

Enphase Energy: Competition heating up

Enphase Energy is a company focused on installing residential solar panels and storage solutions. Its latest Q3 2024 earnings – reported after the market closed on Tuesday (22 October) – saw it post revenue of US$380.9 million, up sequentially from Q2 2024 but down year-on-year.

While the company saw strong revenue growth in its US business, which saw revenue grow 43% versus Q2 2024, there was weakness in Enphase’s European business. Weakness in demand there saw its revenue drop 15% quarter-on-quarter.

Weak guidance from management, which projects Q4 2024 revenue in a range of US$360 million to US$400 million, also weighed on sentiment. With competition heating up in the US, there are also issues Enphase Energy management will need to navigate.

For example, Tesla Inc (NASDAQ: TSLA) now has a compact home battery that holds power generated by solar, threatening a key portion of Enphase’s business. Investors will have to see more positive developments coming from Enphase Energy in the coming months to have confidence that the firm can handle this competition.

As a result, Enphase Energy shares fell sharply and finished Wednesday down 14.9%. So far in 2024, Enphase Energy’s stock price is down 40%.

NextEra Energy: Steady renewables growth

NextEra Energy is one of the world’s largest clean energy companies and it’s headquartered in Florida. It owns and operates the country’s largest utility – Florida Power & Light Company (FPL) – that is its cash cow. The cash flow from this business allows NextEra to develop a competitive clean energy business – NextEra Energy Resources – that is also the world’s largest generator of renewable energy from wind and solar.

The company is known as a reliable earnings compounder and its latest earnings – reported before the market opened on Wednesday 23 October – were in line with projections of that consistent growth.

NextEra posted adjusted earnings per share (EPS) of US$1.03 in Q3 2024, up around 10% from the US$0.94 it generated in Q3 2023. NextEra management maintained its previous projection that it will grow adjusted EPS at a range of 6-8% through 2027.

NextEra Energy’s financial expectations

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Source: NextEra Energy Q3 2024 earnings presentation

FPL saw its EPS grow to US$0.63 for the latest quarter, up from US$0.58 in Q3 2023. Two large hurricanes also hit Florida recently (Helene and Milton). However, even with 66 of FPL’s 88 existing solar sites being exposed to the hurricanes, less than 0.05% of the panels were affected. This was strong evidence of the robust infrastructure NextEra has built in its home state.

Meanwhile, NextEra Energy Resources continued to add to its growth with new additions to its renewables and storage portfolio. It also has a strong backlog of renewables projects that stands at more than 24 gigawatts (GW). With increasing power demand from companies in the US, particularly in the tech sector, NextEra management also stated that it’s considering restarting a shuttered nuclear plant in Iowa.

NextEra Energy finished Wednesday up 1.5%, outperforming the S&P 500’s 0.9% decline. So far this year, NextEra Energy shares are up 38% versus the S&P 500’s 22.2% advance.

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