NEP Shares Tumbling On Analyst Downgrade: What's Going On?

NextEra Energy Partners LP NEP shares are trading lower by over 15% after several analysts downgraded the stock following the limited partner distribution per unit growth rate revision. 

Yesterday, the company revised its limited partner distribution per unit growth rate to 5% to 8% annually through at least 2026, with an expected growth rate of 6%. 

NEP now expects the annualized rates of Q3 2023 distribution per common unit to be $3.47, payable in November 2023, and Q4 2023 distribution per common unit to be $3.52, payable in February 2024.

Oppenheimer analysts downgraded the stock to Perform from Outperform. 

NEP views the event as a reaction to the current capital markets environment. Nevertheless, the analyst believes higher PPA rates for renewables and visibility to 58GW sponsor opportunities through 2026 will offer large future growth for the platform and expects NEP to undertake value-accretive M&As and refinance debt.

The analyst lowered the FY24 revenue, EBITDA, and CAFD estimates to $1,363 million (from $1,443 million), $1,978 million (from $2,226 million), and $744 million (from $769 million).

Raymond James analyst Pavel Molchanov lowered the price target to $50 from $60 and maintained an Outperform rating. 

The analyst thinks the event is not "out of the blue" and believes all infrastructure developers and renewables will need to rethink growth plans amid the higher cost of capital environment. 

Molchanov believes the growth rate reduction by NEP suggests 'fewer dropdowns from the parent company.' 

The analyst thinks the guidance cut pertains to assets in place rather than future dropdowns.

The analyst projects a dropdown in mid-2024, even a smaller one, and lowered the 2024 estimates for operating EPU to $3.51 (from $3.56), revenue to $1,745 million (from $1,756 million), and adjusted EBITDA to $2,156 million (from $2,172 million). 

Moreover, JP Morgan downgraded the stock to Neutral from Overweight and cut the price target to $40 from $69.

Price Action: NEP shares are down 19.2% at $30.26 on the last check Thursday.