1 / 49

General Body Meeting 10.20.11

General Body Meeting 10.20.11. Agenda. Announcements Various Recruiting Events Elections News Updates UAW and Ford Healthcare Updates El Paso Deal NEE Energy Pitch. Recruiting Events. UBS: Intro to Global Capital Markets 4:30pm – 5:30pm - Wednesday, October 26 th Phillips 219

violet
Download Presentation

General Body Meeting 10.20.11

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. General Body Meeting 10.20.11

  2. Agenda • Announcements • Various Recruiting Events • Elections • News Updates • UAW and Ford • Healthcare Updates • El Paso Deal • NEE Energy Pitch

  3. Recruiting Events • UBS: Intro to Global Capital Markets • 4:30pm – 5:30pm - Wednesday, October 26th • Phillips 219 • Goldman Sachs: An Inside Look at Wall Street • 10:00am – 11:00am – Thursday, October 27th • Statler Hotel, Amphitheater • Morgan Stanley: Firmwide Presentation • 6:00pm – 7:30pm – Thursday, October 27th • Statler Hotel, Ballroom

  4. Elections • Thursday, November 3rd • Positions: • President • Vice President • Chief Investment Officer • Portfolio Manager • Vice President of Public Relations • Voting: Invested Members and Regular Attendees • Letter of intents by Saturday, 10/29

  5. News Updates

  6. UAW and the American Car Industry • GM workers already signed pact on Sept 16 • 48,000 unionized workers • Lower bonus/wages than Ford contract • Credit Rating: BB- to BB+ (Moody’s) • Chrysler and Ford yet to sign • Ratification likely for Ford, uncertain for Chrysler • Ford stock down 32% this year

  7. UAW and Ford • 67,000 unionized workers • Total vote 57% in favor of pact • Dearborn, MI (HQ) 62% in favor • Salaried vs. hourly workers • No raise in veteran wage (since 2003) • Signing bonus of $6,000

  8. Healthcare Reform Cuts Long-Term Care • Obama administration scrapped insurance program for chronically ill/disabled patients, citing inefficiency & high costs (October 14th) • Community Living Assistance Services & Supports (CLASS) • CLASS controversial because of soaring premiums • Increasing costs due to lack of healthy purchasers cause instability, could require another taxpayer bailout • 10-year projection to cut federal deficit by $86 billion; many skeptical about validity of estimates

  9. JNJ Earnings • EPS: $1.24 actual v. $1.21estimated • Excludes $0.09 charge for the pending acquisition of medical device maker Synthes (early 2012) • Product recall costs and rising generic competition hurt EPS • Revenue +7% yoy: $16b v. $16.2b estimated • Why did the stock price tank? • U.S. prescription drug revenue -6% • Consumer business -4.5% as a result of a two-year-long stretch of product recalls

  10. JNJ Earnings (cont.) • Some good news!! • International revenue rose 16.4%, with stronger results in all three divisions • Worldwide revenue from medical devices and diagnostics rose 6.1%, to $6.28 billion • Prescription drug sales jumped 8.9% to $5.98 billion • Consumer product sales rose 4.9% to $3.74 billion • J&J raised forecast full-year EPS to $4.95-$5, lifting the low end of the forecast by 5 cents

  11. Kinder Morgan/El Paso • Estimated Transaction Value - $21.1 bn • Including assumption of debt, deal valued at $38 bn • ~45% premium to El Paso’s 20-day average closing price • Kinder Morgan to become the biggest of North America’s midstream energy company • Boardwalk Pipeline Partners • Kinder Morgan shareholders will own ~68% of the new company

  12. NextEra Energy Inc.(NYSE:NEE) Logan Harper Zach O’Connor Mihir Patel Pooja Patel Stella Zhang

  13. Thesis • Portfolio & Geographic Diversity • Approximately 43,000 megawatts of generating capacity, approximately 53% natural gas, 19% wind, 13% nuclear, 13% oil and coal, and 2% hydro and solar • Operations in 28 states and Canada

  14. Thesis • Dividend Growth • Current Dividend Yield – 4% • Current Dividend Payout Ratio – ~50% • Trailing 5 Year Dividend Growth – 8% p.a. • Projected 3-5 Year Dividend Growth – 6% p.a. • Increased dividends for past 15 consecutive years

  15. Thesis • Industry Performance • Low Beta – Great hedge against market volatility • 1-Year Financial Performance • Dow Jones Multi-Utilities Index – 8.77% • Dow Jones Industrial Average – 5.26% • Opportunity to take advantage of market consolidation trend • Potential legislative benefit given involvement in the renewable space

  16. Industry Overview 1

  17. Utilities Sector • Infrastructure focused sector • Capital intensive • Regulated industry • Utilities entail: • Electric • Gas • Water • Renewables

  18. Power & Utilities

  19. Power & Utilities • Progressive restructuring along with significant regulatory changes • Industry trend of vertical integration ensuring power off-taker • Average annual dividend – 3.9%

  20. Regulation • Monopoly structure in exchange for obligation to serve all customers with Federal and State regulations to safeguard against potential monopolistic abuses • The local utility is granted monopoly to service customers in a specific geographic area (service territory) • Regulations developed to control operating procedures, prices, and entry to the industry in order to protect consumers from potential monopolistic abuses • Earn a reasonable return in exchange for obligation to serve and provide reliable electric power to all customers

  21. Regulation • Utilities are price regulated by federal, state, and local governments as well as FERC and NERC for energy reliability standards. • Florida retail operations are regulated by the FPSC, which has jurisdiction over retail rates, service territory, and other matters. • The American Clean Energy and Security Act in June 2009 included provisions for a cap and trade that requires utilities to get 15% of their electricity from renewable sources and to reduce their electricity use by 5% by 2020.

  22. Industry M&A Outlook • Stimulation of further M&A activity: • First Energy and Allegheny Energy • Exelonand Constellation Energy • DukeEnergy and Progress Energy • Northeast Utilities andNSTAR

  23. Industry Outlook • U.S. Regulatory Structure • Renewable Portfolio Standards • Political & Regulatory Risk • Global Demand Uptick • U.S. Energy Information Administration expects global energy demand to increase 44% over the next 20 years • Liquidity • Remains a high priority as expiration dates for sizeable bank credit facilities approach in 2011-2012

  24. Company Overview 2

  25. NextEra Energy Inc. • NYSE:NEE; $55.08

  26. NextEra Energy Inc. CorporateStructure • Capacity - 43,000MW • Service Territory – 28 States, Canada • Renewable resources accounted for 90%of electricity output in 2010 • CO2 emissions at less than half the industry average • 3rd largest nuclear power generation fleet NextEra Energy Inc. N YSE:NEE Florida Power & Light Co. NextEra Energy Resources ServiceTerritory

  27. Florida Power & Light Co. • 8.7 million customers in FL • Most affordable electric service in FL • Lowest of 55 electricity providers • 24% below national average • 99.98% service reliability to customers • 3rd largest rate-regulated electric utility • Rate Case – Through 2012

  28. Florida Power & Light Co. • Revenue Segment Mix • Regulation – FSPC, FERC, NERC • Cost Recovery Clauses • Fuel • Purchased Power & Interchange Agreements • Conservation & Environmental-Related Expenses • Revenue Taxes & Franchise Fees

  29. Florida Power & Light Co. • Proposed CapEx Structure

  30. NextEra Energy Resources • 18,866 MW of Generating Assets • Contracted ~ 11,300 MW – Weighted Average Remaining Contract Life of 14 Years • Merchant Basis ~ 5,800 MW • #1 Wind Energy • Portfolio expanded from 1,745 MW in 2002 to 8,298 MW in 2010 • Continuing to add capacity (750 MW in 2010)

  31. NextEra Energy Resources • Geographic & Portfolio Diversity

  32. NextEra Energy Resources • Proposed CapEx Structure

  33. NEE – Portfolio • Natural Gas 54% • Wind 20% • Nuclear 13% • Oil 10% • Coal 2% • Hydro & Solar 2%

  34. Other Operations • Lone Star is a regulated transmission provider in TX regulated by PUCT with regards to rates charged to customers, and aspects of siting, construction, and operation of transmission systems • Lease wholesale fiber-optic network capacity and dark fiber to FPL, and other customers, primarily telephone, wireless carriers, internet and other telecom companies

  35. Growth and Expansion • CapEx • $35 billion between 2002-2010 • $16 billion planned through 2014 • 8.7% annual rate-base growth • Renewable Portfolio Standards – 29 States • Industry Consolidation Trend • Recent uptick in M&A transactions within the Power & Utilities sector provides opportunity for NEE to acquire additional assets and/or position itself as an attractive acquisition target

  36. Competitors 3

  37. Southern Company • S&P Credit Rating – A • 4.4 million customers • Constructing, acquiring, and managing generation assets and selling electricity in the wholesale market • Expanding into communication & fiber optics • Trading @ 43.11 (~99% of 52 Week High) • Dividend Rate of 4.3% with an 80% Payout Ratio

  38. Exelon Corporation • S&P Credit Rating – BBB- • 5.4 million customers • Energy generation, power marketing, transmission and energy delivery • Relatively low PE Ratio – 10.6x • Trading @ 42.5 (~94% of 52 Week High) • 13.2% Revenue Increase & 10.8% Decrease in Net Income

  39. Duke Energy Corp • S&P Credit Rating – A- • 4 million customers • Sell natural gas and natural gas liquids • Services to retail distributors, electric utilities, marketers, industrial companies, and independent power producers • DUK – $20.23 • Currently trading @ ~99% of 52 Week High • Slightly volatile period – In midst of Progress merger

  40. Financials 4

  41. NEE – Credit Ratings • Credit Ratings – December 2010

  42. Valuation • Rate Base Model resulting in a Cost of Service • Annual 8.7% historical rate base growth • Rate Cases – Result of Over/Under Earning allowed ROE • Rates charged to customers are generally regulated based on costs incurred by a utility and a rate of return

  43. Cost of Service • Rate Base • Assets “used and useful” in providing rate regulated utility service • Investments that need to be financed by the capitalization of the firm • Capital Structure • How the Rate Base is financed – • % Debt • % Equity • Allowed Return • Cost of Debt • Cost of Preferred • Allowed Return on Equity X X

  44. Cost of Service • Return on Capital • Rate Base • * (% Debt * Cost of Debt) • * (% Preferred * Cost of Preferred) • * (% Equity * Allowed ROE) • =Allowed Return On Capital • Operating Expenses • Fuel Expense • O&M Expense • Depreciation Expense (Return On Capital) • Operating Tax Expense • Income Tax Expense + = Cost of Service

  45. Dividend Payout Ratio

  46. Financials

  47. Investment Rationale • Analyst Estimate • $62 target price is based on a combination of 12.75x 2013 PE ($63.99) and 2013 sum-of-the-parts($59.15) methodologies. • Risks • Prolonged weakness in the FL economy and housing market • Continued weakness in the wind market • Long-term outlook • Annual dividend growth of approximately 5% • NEE benefiting from being national leader in solar and wind development

  48. Recommendation • Time Horizon > 1 Year • 25 Shares @ $55.08 • Questions?

  49. Thanks for coming by! • Reminder: No Meeting Next Week!

More Related