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Xcel Energy's Focus on Clean Energy, Investments Fuel Growth

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Xcel Energy Inc.’s (XEL - Free Report) investments in enhancing its clean energy generation capability, and the ongoing additions to its existing natural gas and electric customers are key catalysts. Also, continuous investments in infrastructure-related projects will benefit the utility in the future.

The Zacks Consensus Estimate for 2020 earnings is pegged at $2.78 per share, indicating growth of 5.3% from the year-ago reported figure. Additionally, the company’s long-term (three-five years) earnings growth rate stands at 5.93%.

What’s Driving the Stock?

Xcel Energy continues to invest in its utility assets for providing its customers with reliable services and effectively meet rising electricity demand. These investments are made in transmission, distribution, electric generation and renewable projects. Notably, the utility anticipates long-term earnings growth in the range 5-7% range. Courtesy of proper operational management, the company expects its business and maintenance expenses to decline 4-5% in 2020, which in turn, will offset the negative impact of COVID-19.

It is also focusing on transition to clean energy. In 2019, NSP-Minnesota filed its Minnesota resource plan, which runs through 2034.  Per this plan, Xcel Energy will achieve an 80% carbon reduction by 2030 and 100% carbon-free electricity by 2050.

Moreover, the Mankato Energy Center’s divestiture and equity issue increased the company’s liquidity level to $4.5 billion. Such a strong cash position will be sufficient to meet its current obligations. The company’s strong cash flow generation capacity will enable it to raise its dividend at regular intervals.

Headwinds

However, Xcel Energy’s natural gas transmission and distribution operations are exposed to several risks including leaks and mechanical setbacks impacting normal operations. Also, the company’s business activities are susceptible to cyber security risks, which might induce a loss of valuable data. Further, it is subject to comprehensive environmental guidelines, which could flare up operating costs.

Zacks Rank & Price Performance

The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past year, shares of the company have gained 6.9% against the industry’s 11.3% decline.

Stocks to Consider

A few better-ranked electric utilities are DTE Energy Company (DTE - Free Report) , MGE Energy Inc. (MGEE - Free Report) and Otter Tail Corporation (OTTR - Free Report) , all carrying a Zacks Rank #2 (Buy) at present.

DTE Energy has a long-term (three-five years) earnings growth rate of 5.67%. It delivered an earnings surprise of 2.55%, on average, in the last four quarters.

MGE Energy has a long-term earnings growth rate of 4.38%. The Zacks Consensus Estimate for 2020 earnings has moved 4.4% north in the past 60 days.

Otter Tail Corporation delivered an earnings surprise of 3.92%, on average, in the trailing four quarters. The Zacks Consensus Estimate for 2020 earnings has been revised 4.7% upward in the past 60 days.

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