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4 Utilities to Strengthen Your Portfolio in the Upcoming Year
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The vaccination rollout helped mitigate the impacts of coronavirus in 2021 and aided global recovery from the dreadful 2020. With bettering situation, demand for utility services from the Commercial and Industrial group is picking. The same momentum continues among the residential customers as well. At this time, stocks from the Zacks Utilities sector seem to have great prospects for 2022, even though the uncertainty about the new variant keeps lingering. This is because this sector ensures stability in demand for its services.
With the reopening of economic activities, the United States is likely to witness recovery in the Gross Domestic Product (GDP) and the unemployment rate. The unemployment rate at November-end was 4.2%, improving from 4.6%, sequentially, while the GDP rose 2.1% for third-quarter 2021after recording a 6.7% hike in the second quarter. These tailwinds will likely boost demand services in the upcoming year.
The Zacks Utilities sector registered earnings growth in all the three quarters of 2021. For the third quarter, earnings growth was 11% while a 12.1% improvement was recorded in revenues. Our weekly Earnings Trends report indicates 4.9% growth in earnings during 2021, backed by 11.9% growth in revenues. This positive trend is likely to continue in 2022, with overall earnings growth of 6.4%, aided by a 2.3% rise in revenues.
Talking about the water industry specifically, the average person usage is currently 80-100 gallons of water each day, which is expected to total 122 trillion gallons in 2022. Per the Fitch Ratings, this industry will likely record strong growth in the upcoming year on the back of increased revenues (owing to the already implemented rate hikes) and cost-management efforts. Another utility industry is electric power. Per the U.S. Energy Information Administration (EIA), retail sales for electricity will climb 3.6% in the current year and further improve 0.2% in 2022 against a decline of 4% registered in 2020.
Atmos Energy Corporation (ATO - Free Report) , California Water Service Group (CWT - Free Report) , Alliant Energy Corporation (LNT - Free Report) and Duke Energy Corporation (DUK - Free Report) delivered an earnings surprise of 6.46%, 10.79%, 4.41% and 2.29%, respectively, on average, in the last four quarters. The current dividend yield of ATO, CWT, LNT and DUK is 2.65%, 1.33%, 2.70% and 3.83%, respectively. All stocks have outperformed the sector in the past year.
One Year Price Performance
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Atmos Energy and its subsidiaries are engaged in regulated natural gas distribution and storage business. It serves above three million natural gas distribution customers in more than 1,400 communities in eight states from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. ATO operates more than 72,000 miles of transmission and distribution lines as well as 5,700 miles of interstate pipelines.
ATO is planning to invest in the range of $13-$14 billion from fiscal 2022 through fiscal 2026, of which more than 80% will be allocated to enhance the safety of its existing operations. The planned investment will result in 6-8% annual earnings growth over the same time frame. ATO aims at reducing methane emissions by 15-20% in the next five years from the current levels. Atmos Energy also aims at lowering methane emissions by 50% within 2035 from the 2017 levels.
The long-term (three to five years) earnings growth rate of ATO is 7.27%. The Zacks Consensus Estimate for fiscal 2022 and fiscal 2023 earnings has moved 0.7% and 1.2% up, respectively, in the past 60 days.
California Water Service is one of the largest investor-owned water utilities in the United States. Along with its units, CWT provides regulated and non-regulated high-quality water and wastewater services to nearly 2 million people in 100 communities.The business operations consist of production, purchase, storage, treatment, testing, distribution and the sale of water for domestic, industrial, public and irrigation uses as well as for fire protection. In some areas, CWT provides wastewater collection and treatment services, including treatment allowing water recycling.
After investing $298.7 million in 2020, CWT spent $207.7 million in the first nine months of 2021. California Water Service reaffirmed its 2021 capex estimates within the $270-$300 million range. The Zacks Consensus Estimate for 2021 and 2022 earnings has moved 7.6% and 3.2% north, respectively, in the past 60 days.
Madison, WI-based Alliant Energy is a holding company with subsidiaries engaged in regulated electric and natural gas services. LNT operates primarily through four wholly-owned subsidiaries and provides services to 975,000 electric and 420,000 natural gas customers in the Midwest. LNT’s Utility Business segment includes the operations of Interstate Power and Light Company, and Wisconsin Power and Light Company. Both units have a diversified fuel mix, consisting of coal, natural gas and renewable resources. Output from these generating facilities is supplemented with purchased power.
Alliant Energy has plans to strengthen its electric and natural gas distribution systems as well as make regular investments to enhance its infrastructure. LNT aims to invest $5.8 billion between 2022 and 2025. Management announced the voluntary goal of retiring all its existing coal-fired generation units by 2040 to lower emissions from the 2005 levels by 50% and 100% within 2030 and 2050, respectively. LNT will replace 2 gigawatts of coal-fired generation with clean energy sources over the next few years.
The long-term earnings growth rate of LNT is 6.06%. The Zacks Consensus Estimate for 2021 earnings has moved up 1.9% in the past 60 days while that of 2022 has been unchanged.
Charlotte, NC-based Duke Energy is a diversified energy company with a wide portfolio of domestic and international, natural gas and electric, and regulated and unregulated businesses which supply, deliver and process energy in North America and the selected international markets. Currently, DUK operates through three business segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure, and Commercial Renewables.
During the 2021-2025 period, DUK anticipates spending capital worth $59 billion while a sum of $60-$65 billion is reserved for the 2022-2026 period, which includes clean-energy generation across the Carolinas, Indiana and Florida. Duke Energy will reduce carbon emissions between approximately 55% and 75% through 2035. In October 2020, DUK had pledged to reduce methane emissions to net zero by 2030 for its natural gas distribution companies.
The long-term earnings growth rate of DUK is 5.29%. The Zacks Consensus Estimate for 2021 earnings has been steady in the past 60 days while that of 2022 has moved up 0.2%.
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4 Utilities to Strengthen Your Portfolio in the Upcoming Year
The vaccination rollout helped mitigate the impacts of coronavirus in 2021 and aided global recovery from the dreadful 2020. With bettering situation, demand for utility services from the Commercial and Industrial group is picking. The same momentum continues among the residential customers as well. At this time, stocks from the Zacks Utilities sector seem to have great prospects for 2022, even though the uncertainty about the new variant keeps lingering. This is because this sector ensures stability in demand for its services.
With the reopening of economic activities, the United States is likely to witness recovery in the Gross Domestic Product (GDP) and the unemployment rate. The unemployment rate at November-end was 4.2%, improving from 4.6%, sequentially, while the GDP rose 2.1% for third-quarter 2021after recording a 6.7% hike in the second quarter. These tailwinds will likely boost demand services in the upcoming year.
The Zacks Utilities sector registered earnings growth in all the three quarters of 2021. For the third quarter, earnings growth was 11% while a 12.1% improvement was recorded in revenues. Our weekly Earnings Trends report indicates 4.9% growth in earnings during 2021, backed by 11.9% growth in revenues. This positive trend is likely to continue in 2022, with overall earnings growth of 6.4%, aided by a 2.3% rise in revenues.
Talking about the water industry specifically, the average person usage is currently 80-100 gallons of water each day, which is expected to total 122 trillion gallons in 2022. Per the Fitch Ratings, this industry will likely record strong growth in the upcoming year on the back of increased revenues (owing to the already implemented rate hikes) and cost-management efforts. Another utility industry is electric power. Per the U.S. Energy Information Administration (EIA), retail sales for electricity will climb 3.6% in the current year and further improve 0.2% in 2022 against a decline of 4% registered in 2020.
Now, let’s focus on four utilities currently carrying a Zacks Rank #2 (Buy) that can boost your portfolio going into 2022. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Atmos Energy Corporation (ATO - Free Report) , California Water Service Group (CWT - Free Report) , Alliant Energy Corporation (LNT - Free Report) and Duke Energy Corporation (DUK - Free Report) delivered an earnings surprise of 6.46%, 10.79%, 4.41% and 2.29%, respectively, on average, in the last four quarters. The current dividend yield of ATO, CWT, LNT and DUK is 2.65%, 1.33%, 2.70% and 3.83%, respectively. All stocks have outperformed the sector in the past year.
One Year Price Performance
Atmos Energy and its subsidiaries are engaged in regulated natural gas distribution and storage business. It serves above three million natural gas distribution customers in more than 1,400 communities in eight states from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. ATO operates more than 72,000 miles of transmission and distribution lines as well as 5,700 miles of interstate pipelines.
ATO is planning to invest in the range of $13-$14 billion from fiscal 2022 through fiscal 2026, of which more than 80% will be allocated to enhance the safety of its existing operations. The planned investment will result in 6-8% annual earnings growth over the same time frame. ATO aims at reducing methane emissions by 15-20% in the next five years from the current levels. Atmos Energy also aims at lowering methane emissions by 50% within 2035 from the 2017 levels.
The long-term (three to five years) earnings growth rate of ATO is 7.27%. The Zacks Consensus Estimate for fiscal 2022 and fiscal 2023 earnings has moved 0.7% and 1.2% up, respectively, in the past 60 days.
California Water Service is one of the largest investor-owned water utilities in the United States. Along with its units, CWT provides regulated and non-regulated high-quality water and wastewater services to nearly 2 million people in 100 communities.The business operations consist of production, purchase, storage, treatment, testing, distribution and the sale of water for domestic, industrial, public and irrigation uses as well as for fire protection. In some areas, CWT provides wastewater collection and treatment services, including treatment allowing water recycling.
After investing $298.7 million in 2020, CWT spent $207.7 million in the first nine months of 2021. California Water Service reaffirmed its 2021 capex estimates within the $270-$300 million range. The Zacks Consensus Estimate for 2021 and 2022 earnings has moved 7.6% and 3.2% north, respectively, in the past 60 days.
Madison, WI-based Alliant Energy is a holding company with subsidiaries engaged in regulated electric and natural gas services. LNT operates primarily through four wholly-owned subsidiaries and provides services to 975,000 electric and 420,000 natural gas customers in the Midwest. LNT’s Utility Business segment includes the operations of Interstate Power and Light Company, and Wisconsin Power and Light Company. Both units have a diversified fuel mix, consisting of coal, natural gas and renewable resources. Output from these generating facilities is supplemented with purchased power.
Alliant Energy has plans to strengthen its electric and natural gas distribution systems as well as make regular investments to enhance its infrastructure. LNT aims to invest $5.8 billion between 2022 and 2025. Management announced the voluntary goal of retiring all its existing coal-fired generation units by 2040 to lower emissions from the 2005 levels by 50% and 100% within 2030 and 2050, respectively. LNT will replace 2 gigawatts of coal-fired generation with clean energy sources over the next few years.
The long-term earnings growth rate of LNT is 6.06%. The Zacks Consensus Estimate for 2021 earnings has moved up 1.9% in the past 60 days while that of 2022 has been unchanged.
Charlotte, NC-based Duke Energy is a diversified energy company with a wide portfolio of domestic and international, natural gas and electric, and regulated and unregulated businesses which supply, deliver and process energy in North America and the selected international markets. Currently, DUK operates through three business segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure, and Commercial Renewables.
During the 2021-2025 period, DUK anticipates spending capital worth $59 billion while a sum of $60-$65 billion is reserved for the 2022-2026 period, which includes clean-energy generation across the Carolinas, Indiana and Florida. Duke Energy will reduce carbon emissions between approximately 55% and 75% through 2035. In October 2020, DUK had pledged to reduce methane emissions to net zero by 2030 for its natural gas distribution companies.
The long-term earnings growth rate of DUK is 5.29%. The Zacks Consensus Estimate for 2021 earnings has been steady in the past 60 days while that of 2022 has moved up 0.2%.