Utility Sector Ideas

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NextEra Energy - >>> Tesla and Apple Split Their Stocks. Now NextEra Energy Is Too.


Barron's

By Ben Levisohn

Sept. 16, 2020


https://www.barrons.com/articles/nextera-energy-stock-split-51600183333?siteid=yhoof2&yptr=yahoo


After Apple and Tesla announced stock splits—and subsequently saw their shares soar—observers said it was only a matter of time until others followed suit. Well, at least one other is following suit.

After yesterday’s close, NextEra Energy (ticker: NEE), a utility company, announced a four-for-one split, and also increased its guidance. “Each shareholder of record on Oct. 19, 2020, will receive three additional shares of common stock for each then-held share, to be distributed on Oct. 26, 2020,” the company said in a statement. “Trading will begin on a stock split-adjusted basis on Oct. 27, 2020.”

The stock closed up 4.9%, to $295.70, Tuesday. The S&P 500 was up 0.5%, and the Dow Jones Industrial Average was effectively flat. In premarket trading Wednesday, the stock was down 4.3%.

NextEra Energy now expects to earn between $9.60 and $10.15 in 2021, an increase of 20 cents over previous guidance. It also said it expects to grow by 6% to 8% in 2022 and 2023. NextEra credited “ongoing strength of the renewables development environment and the continued execution across all of its businesses” for the more optimistic outlook.

The guidance is great, but it’s the stock split that caught our attention. Apple (APPL) gained 34% from July 30, when it announced the split, through Aug. 31, when the split occurred. Tesla (TSLA) gained 81% from Aug. 11, when it announced its split, through Aug. 31, when it happened.

“Splits are just optics, but they can add to speculative frenzies,” Wolfe Research strategist Chris Senyek wrote in a Sept. 14 report. “Given the huge run-ups by Apple and Tesla following their recent split announcements, we expect many other companies with high share prices to follow suit—if the current bubble continues to build.”

Senyek, however, notes that companies that split their stocks underperform the median company in their industry after splitting their shares by an average of 2.2 percentage points over the 12 months following the split. Companies with high share prices—over $100—perform worse than stocks with lower prices, she adds.

That makes sense. If a stock runs up because of something that does nothing to change its fundamentals, it should give those gains back after the split. That’s what has happened with Apple and Tesla.

Might it happen to NextEra too?

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