Shares of NextEra Energy Partners (NEP 1.24%) tumbled another 13% in November, according to data provided by S&P Global Market Intelligence. With that reject, the renewable energy stock has now lost about two-thirds of its value this year. Investors continue to question the company’s ability to reach its reset growth outlook, even as it makes progress with its strategic scheme.
Making some progress
NextEra Energy Partners has been under pressure all year over concerns about its finances. The company relied heavily on convertible portfolio equity financing (CEPF) with institutional investors to fund its growth in recent years. Those financings are starting to mature. With interest rates rising and its stock price crashing, the company’s cost of capital has skyrocketed, making it more expensive to redeem this funding while securing new financing to continue growing.
The company has taken steps to address this issue, including unveiling a scheme in May to transition to a pure-play renewable energy producer by selling its natural gas pipeline assets. It intends to use that cash to redeem its CEPFs and fund new acquisitions.
NextEra Energy Partners sealed a deal to sell one of its natural gas pipeline businesses in November. It’s selling STX Midstream to Kinder Morgan in a $1.8 billion deal.
The sale, which should close early next year, will give it the funds to pay off the related debt of those pipeline assets, complete the $1.1 billion buyout under its NEP Renewables II CEPF by June 2025, and pay down some of its credit facility. The company had previously used its credit line to complete the final buyouts of the $402 million in STX Midstream CEPF and the December 2023 buyout of about $180 million related to the NEP Renewables II CEPF.
That sale will give the company some breathing room. It expects to have the cash needed to redeem its CEPFs through 2025. It also doesn’t expect to need any new equity to fund its growth through 2027. Because of that, NextEra Energy Partners believes it can reach its revised forecast of growing its dividend by about 6% per year through 2026.
Meanwhile, the company raised some additional debt in early December. It issued $750 million of 7.25% notes due in December 2029. It will use those funds to repay two tranches of 4.25% notes that mature next July and September. While it’s paying a much higher rate on the new debt, it’s getting out ahead of its 2024 maturities.
Time to buy this beaten-down renewable energy stock?
NextEra Energy Partners is having a challenging year as higher interest rates have hampered its plans. However, the company is making progress on its revamped strategy.
What’s unclear is whether the company will be able to reach its revised dividend growth scheme or have to cut its payout. While that makes it risky for income-seeking investors, the company has significant upside potential if it can execute its strategy. That makes it a potentially high-reward opportunity for investors with a high risk tolerance.
Matthew DiLallo has positions in Kinder Morgan and NextEra Energy Partners. The Motley Fool has positions in and recommends Kinder Morgan. The Motley Fool has a disclosure policy.
