Despite facing challenges such as high inflation, elevated interest rates, and demand uncertainty, the energy industry's prospects appear promising. There is a strong energy demand fueled by global population growth and energy-intensive applications.
Geopolitical tensions, anticipated interest rate cuts later this year, recovery of the Chinese economy, and stabilizing market demand are expected to support the energy sector’s growth.
Concerns over OPEC+'s production cuts extending into the second quarter and geopolitical tensions in the Middle East have raised concerns about supply constraints, which could lead to higher crude oil prices. The EIA has raised its global oil consumption forecasts by 0.4 million bpd to 102.91 million bpd for 2024 and by 0.5 million bpd to 104.26 million bpd for 2025.
OPEC anticipates a 2.25 mb/d increase in world oil demand in 2024 and a 1.85 mb/d increase in 2025. Although electricity demand in the U.S. dropped last year, it is predicted to recover, with demand rising 2.5% this year, followed by a 1% growth in 2025 - 26 driven by manufacturing, data centers, electrification, hydrogen production, and severe weather impacts.
Given this backdrop, let’s compare two energy stocks, NextEra Energy, Inc. (NEE) and Energy Transfer LP (ET), to understand why ET holds a greater growth potential for investors right now.
The Case for NextEra Energy, Inc. Stock
NextEra Energy, Inc. (NEE) and its subsidiaries generate, transmit, distribute, and sell electric power to retail and wholesale customers. The company generates electricity through wind, solar, nuclear, natural gas, and other clean energy sources.
NEE’s stock has declined 12% over the past year to close the last trading session at $67.42. However, it has gained 5.5% over the past month.
NEE’s revenue grew at a CAGR of 16.6% over the past three years. Its EBITDA grew at a CAGR of 22.5% over the past three years. Furthermore, its net income grew at a CAGR of 21.6% over the past three years.
In terms of forward EV/EBITDA, NEE is trading at 14.88x, 39.5% higher than the industry average of 10.66x. Additionally, the stock’s forward EV/EBIT of 23.59x is 32.4% higher than the industry average of 17.81x.
In terms of the trailing-12-month gross profit margin, NEE’s 63.02% is 47.9% higher than the 42.62% industry average. Likewise, its 33.42% trailing-12-month EBIT margin is 58.5% higher than the industry average of 21.08%. However, its 0.16x trailing-12-month asset turnover ratio is 27.9% lower than the industry average of 0.22x.
For the fiscal first quarter that ended March 31, 2024, NEE’s operating revenues decreased 14.7% year-over-year to $5.73 billion. Its operating income declined 31.6% from the year-ago value to $2.01 billion.
However, the company’s adjusted earnings and EPS stood at $1.87 billion and $0.91, up 11.6% and 8.3% year-over-year, respectively. Additionally, as of March 31, 2024, NEE’s total assets stood at $179.95 billion, compared to $177.49 billion as of December 31, 2023.
Street expects NEE’s EPS for the quarter ending June 30, 2024, to increase 4.2% year-over-year to $0.92. Its revenue for the same quarter is expected to decrease 1.9% year-over-year to $7.21 billion. NEE surpassed the Street EPS estimates in each of the trailing four quarters.
NEE’s stock is trading below its 50-day and 200-day moving averages of $60.92 and $61.46, respectively.
NEE’s POWR Ratings are consistent with this outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a C grade for Growth, Momentum, Stability, Sentiment, and Quality. Within the Utilities - Domestic industry, NEE is ranked #22 out of 63 stocks. To see NEE’s rating for Value, click here.
The Case for Energy Transfer LP Stock
Energy Transfer LP (ET) provides energy-related services. It owns and operates approximately 11,600 miles of natural gas transportation pipeline, three natural gas storage facilities, and two natural gas storage facilities in Texas and Oklahoma. Additionally, it manages 19,945 miles of interstate natural gas pipeline.
ET’s stock has gained 24.1% over the past year to close the last trading session at $15.98.
ET’s EBITDA grew at a CAGR of 10% over the past three years. Its EBIT grew at a CAGR of 12.3% over the past three years. Likewise, its revenue grew at a CAGR of 26.4% during the same period.
In terms of forward EV/Sales, ET is trading at 1.42x, 29.6% lower than the industry average of 2.01x. Likewise, its forward Price/Sales is trading at 0.63x, 58.2% lower than the 1.50x industry average.
In terms of the trailing-12-month Capex / Sales, ET’s 3.99% is 73.2% lower than the 14.90% industry average. On the other hand, its 0.72x trailing-12-month asset turnover ratio is 38.2% higher than the 0.52x industry average.
ET’s revenues for the fourth quarter ended December 31, 2023, rose marginally year-over-year to $20.53 billion. Its operating income rose 19.9% from the year-ago value to $2.17 billion. Its adjusted EBITDA increased 4.8% year-over-year to $3.60 billion.
For the same quarter, ET’s net income attributable to partners and net income per common unit came in at $1.33 billion and $0.37, up 14.9% and 8.8% over the prior-year quarter, respectively.
Analysts expect ET’s EPS and revenue for the quarter ended March 31, 2024, to increase 18.8% and 10.4% year-over-year to $0.38 and $20.97 billion, respectively.
ET’s stock is trading above its 50-day and 200-day moving averages of $15.37 and $14.04, respectively.
ET’s POWR Ratings reflect its bright prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Growth, Value, Stability, and Sentiment. Within the Energy - Oil & Gas industry, it is ranked #7 out of 81 stocks. In total, we rate ET on eight different levels. In addition to what we stated above, we have also rated ET for Quality. Get all the ET ratings here.
NEE vs. ET: Which Energy Stock Has Growth Potential?
Positive economic strides in China, the ongoing geopolitical crisis, and the central bank’s expected rate cuts will benefit the energy sector. Meanwhile, electricity demand is expected to grow due to rising demand from manufacturing, data centers, etc.
NEE and ET look well-positioned to capitalize on the industry’s promising prospects. Considering ET's robust financial position, solid historical growth metrics, strong momentum, favorable analyst estimates, greater stability, and discounted valuation, it could be a better investment choice than NEE.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Utilities - Domestic industry here. Also, click here to view all the top-rated stocks in the Energy - Oil & Gas.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
NEE shares were trading at $67.27 per share on Tuesday morning, down $0.15 (-0.22%). Year-to-date, NEE has gained 11.76%, versus a 6.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
NextEra Energy (NEE) vs. Energy Transfer (ET) - Which Energy Stock Has Growth Potential? StockNews.com
