The energy sector has been one of the hardest hits by the Covid-19 pandemic, mostly due to widespread lockdowns and the resultant collapse in fuel demand.
However, one corner of the energy market has actually been thriving: Clean energy. The sector’s favorite benchmark, iShares Global Clean Energy ETF (ICLN), has returned 124% YTD vs. 24% by the S&P 500. Those impressive returns appear well-deserved, though.
The International Energy Agency’s (IEA) 2020 Outlook points to the highest-ever share of newly built generation capacity for renewables. According to the energy watchdog, 200 gigawatts of renewable power have been added in the current year, with renewables expected to account for 95% of the net increase in global power capacity through 2025. The agency has projected that installed wind and solar capacity will surpass natural gas and coal in 2023 and 2024, respectively.
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That said, one renewable energy entity has been on a winning streak that stretches back long before Covid-19 reared its ugly head:
A leading electric utility and renewable energy giant, NextEra has easily outperformed the market, with NEE Shares having returned 27% and 20% annually over the past five and 10 years, respectively. That’s way better than 14% and 13% per year for the S&P 500, and 12% and 11% by the Dow Jones.
NextEra is America’s leading producer of wind and solar energy, with about 30% of its energy portfolio coming from renewables. The shares are incredibly popular on Wall Street, with NEE stock included in 59 stock indices and owned by 2,736 institutions.
Unfortunately, being highly visible has left NEE overvalued, with a stratospheric valuation of nearly 32x expected next 12 months earnings, or roughly twice the S&P 500 Sector Utilities Index. Further, rapidly swelling debt burden thanks to unpaid bills due to Covid-19 could leave the likes of NextEra in a profit hole for years.