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Wall Street's outlook on NextEra unfazed after Hawaiian Electric deal nixed

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Wall Street's outlook on NextEra unfazed after Hawaiian Electric deal nixed

Onthe company's first-quarter 2016 earnings call April 28, Chairman and CEOJames Robo was asked aboutlingering plans to acquire OncorElectric Delivery Co. LLC. Robo, at the time, did not evince greatinterest: "We have a pretty tight screen on what we would be willing to do,"he said. "There's no imperative for us to do regulated M&A. We don'thave to do it."

Notably, NextEra'slong-running pursuit of HawaiianElectric Industries Inc., a $4.3 billion deal, did not come up on that April 28conference call. A few days later, a plan for an investor group led byHunt Consolidated Inc.to acquire Oncor fell apart,and Energy Future Holdings Corp.,which owns about 80% of the utility, filedan alternative bankruptcy reorganization plan. Within days,reports surfaced thatNextEra was back in the running for Oncor, competing against and .

Meanwhile,obstacles to the HECO acquisition continued to mount, including the whoappeared to share the governor's opposition to the deal. Because most observersregarded the NextEra-HECO merger as a longshot, the impact on NextEra — whichterminated the dealafter Hawaiian regulators rejectedit July 15 — is expected to be minimal.

"[W]hat does this mean for[NextEra]?" Wells Fargo analyst Neil Kalton wrote in a July 18 note. "In our view, not a heck of a whole lot."Markets reflected this sentiment, with NextEra shares closing at $128.25 onJuly 18, up 0.53%. Hawaiian Electric shares fell 7.33% to $30.10 in heavytrading.

Hawaiian Electric was always a "want," rather thana "need," for NextEra, offering the potential for significantinvestment across the state to comply with Hawaii's ambitious renewable goals,and an opportunity to deploy new technology like battery storage anddistributed solar. In the view of Wells Fargo, failing to close the HawaiianElectric deal "barely impacts," the earnings outlook for NextEra.

"We believe that Oncor remains a more sizeable trophy,"Kalton added.

Guggenheim Securities LLC analyst Shahriar Pourreza notedNextEra is forecasting 6% to 8% organic earnings growth, and the HawaiianElectric deal was not material to its growth plans. Nor is the $90 millionbreakup fee NextEra must pay to terminate the deal material to its earnings. "Whilethe [Hawaii Public Utilities Commission] offered guidance on six areas to meetpublic interest, we do not expect this saga to continue," Pourreza wrote. "Weexpect [NextEra] to shift to Oncor."

As for Hawaiian Electric, analysts left estimates mostlyunchanged, but predicted that the utility will be challenged to execute on astrategy of deploying large-scale renewables and integrating distributedgeneration into the grid on its own. To achieve these ambitious renewablegoals, Hawaiian Electric will need constructive regulatory treatment, WellsFargo noted, and characterized the utility's relationship with regulators inrecent years as "complicated." Barclays Capital Inc. raised its pricetarget for Hawaiian Electric by a $1 to $29, to reflect its standalone value,which includes $23 for its utilities and $6 for its bank subsidiary, .

Market prices arecurrent at time of publication and are subject to change.