NextEra Energy Partners Gets A Windy Downgrade: Analyst Cautious Amid Equity Dilution & Funding Challenges

KeyBanc analyst Sangita Jain downgraded NextEra Energy Partners LP NEP to Sector Weight from Overweight.
The analyst is cautious about impending equity dilution after the announcement of an ATM offering of 2.3 million shares to fund the acquisition of the interest in the STX CEPF.
Jain is concerned that the upcoming conversions would create an overhang in the higher capital cost environment in the medium term.
The analyst believes the ATM offering and expected share repurchase of $1 billion in 2024-2025 (if via equity) will lead to a potential 25% dilution.
To date, NEP has completed a 50% buyout of the 2019 STX Midstream CEPF through ATM and cash on hand, and the remaining 50%, along with 15% in another CEPF, will be financed through the end of 2023.
The analyst estimates the total equity portion of the buyouts to be around $418 million.
Jain believes NEP has high growth opportunities given wind repowering (1.3GW identified), NEER drop-downs, standalone storage additions, and other third-party deals. However, she sees funding for these opportunities as challenging in the near to medium term.
Jain projects revenues of $1.5 billion and adjusted EBITDA of $1.9 billion in 2023 and revenues of $1.7 billion and adjusted EBITDA of $2.3 billion in 2024.
Price Action: NEP shares are trading lower by 4.76% at $56.88 on the last check Wednesday.

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