- KeyBanc analyst Sangita Jain downgraded NextEra Energy Partners LP (NYSE: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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