NextEra 'The Most Credible Drop-Down Story In The Market,' BofA Says In Double Upgrade

NextEra Energy Partners, LP NEP is a clear winner from Thursday's Federal Energy Regulatory Commission decision on MLP cost-of-service rates, as it offers the benefits of high-growth MLPs without any risk from the FERC decision, according to Bank of America Merrill Lynch.

The Analyst

BofA Merrill Lynch analyst Julien Dumoulin-Smith upgraded shares of NextEra from Underperform to Buy and increased the price target from $38 to $43.

The Thesis

NextEra is "the most credible drop-down story in the market" given the limited long-term growth prospects of other YieldCos and the tax implications of the FERC order, Dumoulin-Smith said in a Friday note.

"While recent sales in the YieldCo space are concerning, we emphasize the lower asset quality of peer portfolios and parent capacities to enable growth," the analyst said. 

BofA has "limited" concerns around NextEra's runway of opportunity, as the company has close to 17GWs of contracted renewables at NEER through 2020. The analyst sees a clear cost-of-capital advantage through leveraging the NEER platform, both in terms of financing and expertise.

NextEra may not require any equity issuance through 2020 at the earliest, Dumoulin-Smith said. 

NextEra has a best-in-class portfolio, unmatched growth potential and significant financing flexibility to fund the growth, according to BofA. 

The energy company's share price is expected to benefit as investors from both the YieldCo and MLP spaces recognize the company's superior prospects, the analyst said. 

The Price Action

NextEra shares are up about 22 percent over the past year.

The stock was up 1.4 percent at the time of publication Friday afternoon. 

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