By now, the trend surrounding energy stocks should be clear as daylight non-renewable sources are at an increasing risk of needing a suitable replacement. However many years this transition will take, and trust that it will be a while, you can start to position a small part of your portfolio for the big payday.
Lucky for you, the timing is better than ever with earnings season kicking off, showing you, as Buffett likes to say, who is swimming naked as the tide goes out. After new data has come out in the pre-market hours, the following earnings releases will aid your decision-making and maybe even beat the market.
The Money has Voted
Two of the most entrenched industry names out in the market have reported their third quarter 2023 earnings results this week, pointing to where the industry as a whole may be headed and where these two names may be dominating.
General Electric (NYSE: GE) stock is up by as much as 4.8% in the trading session after announcing a majorly bullish quarter, but more on that later; all that matters is the market's reaction and the outperformance of up to 55% against the S&P 500 on a year-to-date basis.
If buying a stock on the rise is not your thing, do not worry; NextEra Energy (NYSE: NEE) has underperformed the market by roughly 46% during the same period. However, that stock is up today by a similar 4.5% after announcing tremendous financial momentum for its quarter.
These two have in common their growing positioning into renewable energy sources, namely solar and nuclear. Competing against the number one provider of atomic energy, Constellation Energy (NASDAQ: CEG), will be a tough road. Still, it may help you diversify your bets for the next energy frontier.
Like the market, Constellation stands in the middle, with General Electric outperforming it year-to-date and NextEra underperforming during the same period. You can now have your pick of the three best names in the industry and choose between momentum, undervaluation, or a slow and steady trip.
Taking this vote from the market, it would be helpful to understand these infamous financial results to get a more comfortable reading on the potential future performance.
Earnings Lead the Way
For General Electric, management's job was perhaps the easiest of the year while putting together the main headlines. A 19% increase in total orders, valued at $17.9 billion, translating into 20% jumps in revenue over the year, stands on top of the press release to lead the way.
The "GE Vernova" department, the designated space that works on renewable energy sources, provided a 14% boost in revenue with further order increases behind it. The profits in this segment have yet to come, though a $0.3 million loss represented a 72% increase from a year prior.
Despite the stock price underperformance, NextEra's results are worthy of the rally after the announcement. A 10.6% jump in earnings per share could send the stock into a quarterly outperformance, though other developments seem more critical.
Renewable investments have pushed adjusted earnings by roughly 21% over the year, which speaks to the capital allocation skills possessed by management. These skills can be seen in the company's historical financials, where profitability takes the spotlight.
ROE (return on equity) jumped to 14.5% in the last twelve months, up from a standard range of 5.5% to 6.8%, showcasing just how profitable their renewables portfolio is.
Constellation's ROE? Struggling to break past the 6.6% mark, there's a valuation gap to fill here. General Electric's diversified income model places it at a leading 30.9% ROE, though there's a catch.
The bump in profitability may be cyclical due to the quarter's massive jump in aerospace sales due to jet engine demand. Analysts think this trend may be short-lived, so they only see a 9.2% upside from today's prices.
NextEra? Analysts seem more excited about its underperformance price-wise because its financial home runs call for a superior 41% rally to meet the $75.2 price target.
Constellation analysts are very cautious about the future of this stock, with a consensus price target of $99.9, implying a 12% decline is pending. Constellation shares with General Electric that they offer a 0.9% and 0.3% underperforming dividend yield, respectively.
NextEra has the highest upside play and the most competitive dividend yield. This one offers you a 3.5% yield to almost beat inflation. It seems like the market has picked its favorite, hasn't it?