Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is NextEra Energy Inc (NEE, Financial). The stock, priced at 62.81, recorded a loss of 3.87% in a day and a 3-month decrease of 11.44%. The stock's fair valuation is $111, as indicated by its GF Value.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on historical multiples, GuruFocus adjustment factor, and future estimates of the business performance.
We believe the GF Value Line is the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
NextEra Energy: A Potential Value Trap?
Despite its seemingly attractive valuation, certain risk factors associated with NextEra Energy (NEE, Financial) should not be ignored. These risks are primarily reflected through its low Altman Z-score of 1.24. These indicators suggest that NextEra Energy, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Understanding the Altman Z-Score
Invented by New York University Professor Edward I. Altman in 1968, the Z-Score is a financial model that predicts the probability of a company entering bankruptcy within a two-year time frame. The Altman Z-Score combines five different financial ratios, each weighted to create a final score. A score below 1.8 suggests a high likelihood of financial distress, while a score above 3 indicates a low risk.
About NextEra Energy
NextEra Energy's regulated utility, Florida Power & Light, is the largest rate-regulated utility in Florida. The utility distributes power to nearly 6 million customer accounts in Florida and owns 32 gigawatts of generation. FP&L contributes roughly 70% of NextEra's consolidated operating earnings. NextEra Energy Resources, the renewable energy segment, generates and sells power throughout the United States and Canada with more than 25 GW of generation capacity, including natural gas, nuclear, wind, and solar.
NextEra Energy's Financial Health: A Closer Look
A dissection of NextEra Energy's Altman Z-score reveals that its financial health may be weak, suggesting possible financial distress. The Retained Earnings to Total Assets ratio provides insights into a company's capability to reinvest its profits or manage debt. Evaluating NextEra Energy's historical data, we observe a declining trend in this ratio, indicating NextEra Energy's diminishing ability to reinvest in its business or effectively manage its debt.
When it comes to operational efficiency, a vital indicator for NextEra Energy is its asset turnover. The data from the past three years suggests a recent decline following an initial increase in this ratio. The asset turnover ratio reflects how effectively a company is using its assets to generate sales. Therefore, a drop in this ratio can signify reduced operational efficiency, potentially due to underutilization of assets or decreased market demand for the company's products or services.
Conclusion: NextEra Energy as a Value Trap
Despite its seemingly attractive valuation, the low Altman Z-Score and declining operational efficiency suggest that NextEra Energy might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making. GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
