Technology companies and the broader economy are transitioning away from fossil fuels as energy demand skyrockets on the back of artificial intelligence. Microsoft and other tech giants are making deals with nuclear energy companies and other alternative energy firms to power their AI-focused expansion efforts.
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Nuclear energy stocks such as Vistra, Constellation Energy, and others have skyrocketed over the last few years and the past month as Wall Street buys the companies that are going to power the U.S. and its energy-hungry AI and technological expansion.
Data centers could account for 10.9% of U.S. electricity demand by 2030 compared to 4.5% today, according to Citi analysts.
The U.S. power grid and energy ecosystem are in the early years of a multi-decade revamp and massive expansion to support the energy transition, electrification, reshoring, the AI revolution, and beyond.
Three of the top six performing S&P 500 stocks in 2024 are nuclear energy companies and broader electrification plays: Vistra (VST), Constellation Energy (CEG), and GEV Vernova (GEV)—all three of these stocks are currently held in the Zacks Alternative Energy Innovators service.
Today we dive into two slightly more under-the-radar stocks—NextEra Energy and Flowserve—to buy to play the AI-spurred energy transition, spanning nuclear, electrification, and beyond.
Why NextEra Energy is a Great Buy and Hold Stock
NextEra Energy, Inc.will release its Q3 2024 financial results on Oct. 23.
NextEra Energy, Inc. NEEis not under the radar since it is the top holding in the Utilities Select Sector SPDR Fund (XLU), coming in above Southern Co., Constellation Energy, and many others. Instead, NextEra stock offers investors the chance to buy a nuclear and energy transition giant that trades 15% below its all-time highs after CEG, VST, and others skyrocketed to fresh records and look due for pullbacks.
NextEra Energy operates one of the largest electric utilities, Florida Power & Light Company, in the U.S., and is one of the biggest producers of wind and solar energy. NextEra also is a leader in battery storage and a nuclear power plant owner.
NextEra Energy owns nuclear plants in Wisconsin, New Hampshire, and Florida (via FLP), and it might restart its Iowa nuclear facility.
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NEE is set to ride the megatrend of soaring AI-based demand for alternative, non-fossil fuel energy. NextEra Energy Resources posted its second-best origination period ever in Q2, adding more than 3,000 megawatts of new renewables and storage projects to its backlog. This included 860 megawatts from agreements with Google to meet its data center power demand.
NextEra is projected to boost its adjusted EPS by 7% in 2024 and 8% in 2025. NEE has topped our EPS estimates for almost five years running.
CEO John Ketchum said last quarter that NextEra will be “disappointed” if it doesn’t “deliver financial results at or near the top of our adjusted earnings per share expectations ranges each year through 2027, while maintaining our strong balance sheet and credit ratings.”
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NEE stock has climbed 550% in the past 15 years to blow away its highly-ranked Utility-Electric Power industry’s 90% and top the S&P 500’s 470%. NextEra has been on the comeback trail since late 2023 as investors looked ahead of lower rates and the rollout of more energy infrastructure projects.
NEE stock has climbed 55% in the past 12 months, including its recent drop, which took it from overbought RSI levels to below neutral on a one-year timeframe. If NEE holds its ground at its 21-week it might finally be ready to break out and post new highs after earnings.
NextEra trades roughly in-line with its 10-year median and at a 34% discount to its highs at 22.3X forward 12-month earnings. NextEra is one of roughly 65 S&P 500 dividend aristocrat stocks—firms that have both paid and raised dividends for at least 25 straight years.
Any hurricane-related pullback might set up a better buying opportunity for investors high on NextEra stock.
Why Flowserve Stock Looks Like a Must-Buy Nuclear and Energy Stock
Flowserve Corporation is expected to release its Q3 2024 financial results on Oct. 23.
Flowserve FLSstock has soared 115% in the last two years, yet FLS trades 33% below its 2014 records. Flowserve is gaining momentum across nuclear energy and beyond.
Flowserve develops and manufactures precision-engineered flow control equipment such as pumps, valves, and seals for critical service applications. Flowserve’s other products include actuation and instrumentation, energy recovery devices, hydraulic decoking systems, and more.
Flowserve, which has been in business for over 100 years, serves a variety of critical industries including power, chemicals, water, and oil & gas. The company’s power unit is poised to grow as electricity consumption surges, driven by the expansion of AI data centers.
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Flowserve has over 5,000 pumps and 15,000 valves installed at over 200 nuclear reactors. Flowserve has achieved certified supplier status with several Generation III nuclear reactor design firms.
Flowserve in Q2 pointed to “continued optimism around nuclear power generation growth and facility life extension projects.” Flowserve also sees the growth of rare earth mining for the energy transition as another growth driver, alongside the broader infrastructure spending boom.
Flowserve posted a beat-and-raise second quarter. The company’s $1.25 billion in bookings were its highest quarterly level since 2014 (when the stock peaked). Flowserve is projected to grow its sales by 6% in 2024 and 4% next year after expanding its top-line by 20% last year.
FLS is expected to grow its earnings by 31% in FY24 and 15% next year. Flowserve has topped our EPS estimates by an average of 18% in the trailing four quarters and its earnings outlook has continued to climb over the last year, extending its run of upward revisions that began in early 2023. Flowserve earns a Zacks Rank #2 (Buy) right now.
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Flowserve shares have climbed 860% during the last 25 years to crush its sector’s 220% and the benchmark’s 390%. Yet, FLS trades 33% below its 2014 records. FLS is up 31% YTD and trading at 52-week highs. Flowserve is currently on track to break out of a trading range it has been stuck in for nearly a decade. After that, FLS might march back up to its peaks.
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