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Hot utility stock NextEra falls more than 2% after announcing plan to sell $2 billion in equity units

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  • NextEra Energy will sell $2 billion in equity units, priced at $50 apiece.
  • The equity units serve as a contract to purchase shares no later than June 1, 2027.
  • NextEra's stock has risen 20% over the past three months as analysts and investors see utilities benefiting from increasing power demand.
  • The rally has paused over the past month, but Goldman Sachs sees the stock drop as a buying opportunity.
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NextEra Energy stock fell more than 2% Tuesday after announcing a plan to sell $2 billion in equity units to finance power projects as electricity demand rises and to pay back debt.

The Florida-based power company, which operates the largest portfolio of renewable energy in the U.S., will issue equity units for $50, which will serve as a contract to purchase shares no later than June 1, 2027.

"NextEra Energy Capital Holdings expects to use its general funds to fund investments in energy and power projects and for other general corporate purposes, including the repayment of a portion of its outstanding commercial paper obligations," the company said in a statement Monday.

Utility companies have rallied this year as investors and analysts grow bullish on rising electricity demand from data centers, the return of manufacturing to the U.S., and the electrification of the vehicle fleet. The utility sector has gained about 8.6% over the past three months, outpacing the 6.5% gain by the S&P 500.

NextEra has performed strongly, gaining 17% over that same period, as some analysts see the power company poised to benefit from rising demand for renewable energy from tech companies, which are trying to meet climate goals while building out electricity-intensive data centers. NextEra is up about 16% year to date, making it among the top performers in the S&P 500 utilities sector.

But the utility space has cooled off over the past month, with NextEra falling more than 7% over that period. NextEra took a leg lower after its recent investor day, with some investors disappointed that the company did not forecast stronger earnings growth given the level of energy demand over the next decade.

NextEra told investors at the meeting that U.S. power demand will increase by 38% over the next two decades, with the company arguing that much of it will be met by renewables and battery storage. Its capital expenditures are projected at $65 billion to $70 billion from 2024 through 2027, according to UBS.

Goldman Sachs has argued that the drop in NextEra's stock is a buying opportunity.

"We believe the long term growth prospects for NEE remain strong and are expanding with the expected inflection in power demand growth, despite the fact that logistically, it will take time for these projects to be built and contribute to earnings," Goldman analysts led by Carly Davenport told clients last week.

About 71% of Wall Street analysts rate NextEra as the equivalent of buy, while 24% have put a hold on the stock and 4.8% have recommended that investors sell. The analysts have an average price target of $77.08 per share, implying a 6.5% increase over Monday's close.

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