In an earlier thread, Jim mentioned buying NextEra’s junior subordinated debenture, NEE-N (alternatively, NEE-PN, NEE/PRN, or NEE.PR.N, depending on the broker or website where it is quoted). Whatever its symbol, it wasn’t an issue I owned. So I was intrigued. “Why had I ignored it?”
A bit of digging discovered that that NEE also had something it called “equity units”, NEE-P, and an affiliate, NextEra Cap, had 14 bonds. So, which --if any-- might be attractive? The bonds are rated Baa1/BBB+. The jr deb and the equity unit, Baa2/BBB, and the Moody’s report on the bonds all but fell over itself singing NextEra’s praises. But the website I trust for fundamental analysis said the company sucked majorly, and it gave NextEra six red flags on the following points:
(1) NEE’s short term assets ($11.0B) do not cover its short term liabilities ($22.4B).
(2) NEE’s short term assets ($11.0B) do not cover its long term liabilities ($78.3B). (Nor would I expect that they should.)
(3) NEE’s net debt to equity ratio (131.6%) is considered high.
(4) NEE’s debt to equity ratio has increased from 129% to 134.9% over the past 5 years.
(5) NEE’s debt is not well covered by operating cash flow (13.8%).
(6) NEE’s interest payments on its debt are not well covered by EBIT (1.4x coverage).
As noted, I could care less about point #2. But #1, #4, and #6 say --to me-- that the company is having a hard time making money. Hence, it is very likely --at some point in the future-- to stop paying dividends, at least temporarily, until it can fix its cash flow problems. OK, that’s NEE’s ‘Health Profile’. What about its ‘Valuation’?
Again, my fundie website says the company sucks in terms of ‘value’.
(1) It is “over-valued” at its current price. (Hence, it can be assumed any derivatives of it are over-valued as well.)
(2) Its PE, PEG, and PB are each many times NextEra’s industry’s average.
A mid-tier, triple-BBB rating would normally suggest that the company’s stock and bonds are mid-tier in risk. But I’d rated the debenture as ‘spec-grade’, and I’d avoid it for not offering enough reward for its implied risks. This isn’t to say my judgment is correct. But if I second-guess the vetting procedures that generally keep me out of trouble, then I might as well just start throwing darts instead.