NextEra Energy Partners (NEP) saw a significant drop in its stock price, declining by 16.9% during Thursday’s trading. This followed an 8% plunge the day before when the company revised its forecast for full-year run-rate adjusted EBITDA and growth-rate expectations for limited partner distributions. The company’s lower growth outlook prompted downgrades from J.P. Morgan and Oppenheimer, who both shifted their ratings from Buy to Neutral. J.P. Morgan analyst Mark Strouse further reduced the price target for NEP to $40 from the previous $69, citing the stock’s challenges in a cycle of higher cost of capital hindering growth and weighing down on its cost of capital.
Despite the downgrade, analysts still believe there are potential opportunities for NEP in the long term. Strouse stated that NEP’s prospects for dropdown acquisitions from NextEra Energy remain compelling and advised investors to keep an eye on the stock in case the cost of capital improves significantly. Oppenheimer’s Noah Kaye also emphasized the growth opportunities for NEP, considering the higher power purchase agreement rates for renewables, a favorable policy backdrop, and visibility to 58 GW of sponsor opportunities through 2026. However, Kaye emphasized that NEP needs to focus on executing accretive growth, divestitures, and debt refinancing in 2024-25.
In summary, NextEra Energy Partners experienced a significant decline in stock price as a result of a revised growth outlook. This led to downgrades from J.P. Morgan and Oppenheimer, citing concerns over NEP’s higher cost of capital inhibiting its growth potential. However, analysts still view the company’s long-term prospects as promising, highlighting opportunities for dropdown acquisitions, favorable policy conditions, and a large pipeline of sponsor opportunities. NEP will need to focus on executing key growth initiatives, divestitures, and refinancing debt to realize its potential for future growth.