Despite consensus-topping fourth-quarter 2022 earnings results, NextEra Energy Inc.'s share price plunged nearly 9% on Jan. 25 following disclosures that Eric Silagy would be stepping down as head of subsidiary Florida Power & Light Co., and that the company is seeking dismissal of a Federal Election Commission complaint alleging the utility violated state and federal campaign law.
NextEra President, Chairman and CEO John Ketchum told analysts and investors during a fourth-quarter 2022 earnings conference call that the company substantially completed a review of allegations that Florida Power & Light, or FPL, violated state and federal campaign law, and does not believe the utility will be found liable for any violations of state law, based on the information in its possession.
But while equity analysts at Guggenheim, Wells Fargo, Scotiabank, BMO and Bank of America agreed that the sharp decline in the share price — which left NextEra units settling at $76.59 on about four times average volume — was overkill, they emphasized that investors have become increasingly intolerant of uncertainty relating to the complaint filed by advocacy group Citizens for Responsibility and Ethics in Washington claiming that FPL operatives managed to influence coverage of a political news website in the lead-up to the 2020 elections.
"Despite the solid fundamentals, we cannot ignore the optics and regulatory uncertainty at FPL as we await clarity from internal investigations and the FEC decision making, and we continue grappling with investors' near term question of when the stock will find a bottom," Guggenheim told clients, citing "a trifecta argument against FPL's premium designation."
BMO, meanwhile, wrote that NextEra lost about $14.5 billion of its market capitalization during Jan. 25 trading, equating that to about 32 cents of EPS or approximately 14% of regulated earnings.
The stock price overhang may last until late 2023 given that the election commission, known as the FEC, has up to 12 months to decide to investigate complaints against FPL, Scotiabank said.
"We therefore see the biggest potential risks as being reputational, not financial or operational," the analysts said.
NextEra shares were up slightly in mid-morning trading Jan. 26 at about 10:25 a.m. ET, on active volume.
If the FEC decides to investigate FPL, Ketchum said the campaign contributions referenced in the complaint amount to less than $1.3 million, and added, "We do not expect that allegations of federal campaign finance law violations taken as a whole would be material to us."
Even if no violation is found and FPL does not see "a deterioration in regulatory construct," however, shareholders still "don't have patience" for a lengthy investigation process, according to Guggenheim.
NextEra executives said during the call that there was no connection between Silagy's retirement and the FEC probe, but Wells Fargo analysts wrote that he "had become a distraction (and a lightning rod for the media)."
"We view [NextEra]'s decision to bring back [Armando Pimentel as CEO], who is likely well known by key [Florida] stakeholders along with investors, as clearly aimed at calming the waters," they continued, while Bank of America called Silagy's departure a "negative development."
Pimentel held a variety of senior roles at NextEra and subsidiaries prior to retiring in 2019.
All four banks reiterated a "buy" rating on NextEra shares.
On an adjusted basis, NextEra's full-year 2022 earnings were $5.74 billion, or $2.90 per share, compared to $5.02 billion, or $2.55 per share, in 2021, up about 13.7%, according to the company's Jan. 25 announcement. For the fourth quarter of 2022, NextEra reported adjusted earnings of about $1.01 billion, or 51 cents per share, compared with $814 million, or 41 cents per share, in fourth-quarter 2021. The S&P Capital IQ consensus normalized EPS estimate for NextEra in the fourth quarter was 49 cents, and $2.88 for 2022.
NextEra came up short against quarterly revenue estimates, posting revenue of $6.16 billion for the fourth quarter of 2022, compared to the S&P Capital IQ consensus estimate of $6.58 billion.
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