NextEra Energy Partners (NEP) experienced a significant decline in its stock price, dropping by 16.9% during Thursday’s trading session. This comes after the company previously saw an 8% decrease when it adjusted its forecast for full-year run-rate adjusted EBITDA and growth-rate expectations for limited partner distributions. As a result of this lower growth outlook, both J.P. Morgan and Oppenheimer downgraded NEP from Buy to Neutral.
J.P. Morgan analyst Mark Strouse, who also reduced his price target for NEP from $69 to $40, explained that the stock is currently trapped in a negative cycle. The higher cost of capital is impeding the company’s growth, which further impacts its cost of capital. Despite this, Strouse believes that NEP’s long-term potential for dropdown acquisitions from NextEra Energy, its parent company, remains enticing, urging investors to keep an eye on the stock in the event that NEP’s cost of capital improves.
Oppenheimer’s Noah Kaye also commented on NEP’s recent actions, stating that they appear to be reactive to the current capital markets environment while aligning NEP’s dividend per share growth rate with its yieldco peers. While Kaye acknowledges the large future growth opportunities for NEP, such as higher power purchase agreement rates for renewables and a favorable policy backdrop, he believes that the company needs to execute on accretive growth, divestitures, and debt refinancing in the coming years.
In conclusion, NextEra Energy Partners has seen a significant decline in its stock price due to a lowered growth outlook and adjustments to its distribution expectations. This has led to downgrades from J.P. Morgan and Oppenheimer. However, analysts still recognize the potential for NEP’s long-term growth opportunities and suggest monitoring the stock for improvements in its cost of capital.