NextEra Energy Inc. shed about $18.5 billion of market capitalization over two days this past week as Wall Street signaled it was surprised by a change to top leadership.
Shares for NextEra, the world's largest investor-owned electric utility by market cap, slid Jan. 25 to close at $75.10 after closing at $81.92 on Jan. 24. NextEra's stock tumbled to a $72.64 close on Jan. 26.
"We attribute most of the stock weakness to the unexpected announcement that rock star CEO Jim Robo will be retiring soon," Scotia Capital (USA) Inc. analyst Andrew Weisel wrote in a Jan. 28 pre-market report. "We, and nearly everyone who knows the industry, view his leadership as being among the best in the history of the utilities sector."
NextEra announced Jan. 25 that John Ketchum will replace Robo as president and CEO of the Juno Beach, Fla.-headquartered utility, effective March 1.
Ketchum was president and CEO of NextEra Energy Resources LLC and president of NextEra Energy Partners since March 2019.
Robo will become executive chairman of NextEra for the transition period. The executive joined NextEra in March 2002 and became president and CEO of the company in July 2012. The company noted in a news release that NextEra's market capitalization stood at about $29 billion when Robo became CEO and surpassed $150 billion under his leadership.
NextEra's market cap as of Jan. 28 was about $138 billion. At midday, shares were down about 2.8% in heavy trading.
Weisel pointed out that NextEra's shares underperformed by 11% on Jan. 25 and Jan. 26 as the company's market cap "dropped by an astonishing $18.5 [billion]."
"Swings like this simply don't typically happen in the utilities sector, making the drop that much more remarkable," Weisel wrote. "Over the past 10 years, there have only been 24 instances of a stock under our current coverage of 17 utility companies out- or underperforming peers by [more than] 10% over two consecutive trading days. Of those, 14 were in March 2020 and reflect COVID-related panic selling rather than company-specific issues, in our view."
The analyst called the selloff "overdone."
CreditSights analyst Andrew DeVries, in a Jan. 25 research report, said the announcement about the CEO transition "caught us a little off guard."
Weisel, however, also pointed to concerns about NextEra's renewables outlook and concerns about the long-delayed Mountain Valley Pipeline project.
"Overall, we are bullish on the outlook for the North American renewables market but recognize some concerns shared by investors and corporates," Weisel wrote. "We see the biggest risks to industry growth being supply chain disruptions, higher commodity input prices, rising interest rates weighing on project economics and competitive forces pulling down returns."
The analyst called NextEra Energy Resources' capacity additions of 1,500 MW in the fourth quarter of 2021 "impressive" but also pointed out that it was "the smallest quarterly increase of the year."
In addition, NextEra owns a 31% ownership stake in the Mountain Valley Pipeline. On Jan. 25, the U.S. Appeals Court for the 4th Circuit invalidated federal authorizations for the 2-Bcf/d natural gas pipeline to cross the Jefferson National Forest in Virginia and West Virginia.
"[W]e find it hard to imagine that this update contributed to [NextEra's] stock price weakness in a material way ... but it certainly doesn't help," Weisel wrote.
