Don’t look now but interest rates are on the rise. The yield on the 10-Year Treasury Note topped 2.7% during yesterday’s session for the first time since April 2014. Also, with our Federal Reserve beginning to inch the overnight rate higher, many feel rates have nowhere to go but up. That’s not good news for industries with interest rate sensitivity. One of the most sensitive industries in the market is utilities. As rates rise, their yields don’t catch up quick enough to save them from downside risk.
Today’s Bear of the Day is one of those utility stocks. I’m talking about Zacks Rank #5 (Strong Sell) El Paso Energy (EE - Free Report) . El Paso Electric Company, a public utility company, engages in the generation, transmission, and distribution of electricity in west Texas and southern New Mexico. It generates electricity through nuclear fuel, natural gas, and coal facilities, as well as solar photovoltaic panels and wind turbines. The company owns or has ownership interests in various electrical generating facilities with a net dependable generating capability of approximately 2,080 megawatts; four 345 kilovolt (kV) transmission lines in New Mexico and Arizona; and three 500 kV lines in Arizona. It distributes electricity to retail customers principally in El Paso, Texas; and Las Cruces, New Mexico. The company serves approximately 411,100 residential, commercial, industrial, public authority, and wholesale customers.
The reason for the unfavorable Zacks Rank is an analyst drop their current year estimate from $2.55 down to $2.50. This was in the wake of El Paso’s last earnings report where the company reported EPS of $1.47 versus expectations calling for $1.58. The company is set to report earnings again on February 27th before the bell, with analysts looking for 22 cents for the quarter.
The Electric Utility Industry ranks in the Bottom 19% of our Zacks Industry Rank. However, there are a few gems in the business which have more favorable Zacks Ranks. Pampa Energia (PAM - Free Report) is a Zacks Rank #1 (Strong Buy) while Algonquin Power and Utilities Corp (AQN - Free Report) is a Zacks Rank #2 (Buy).
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