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Utilities to Buy Amid Growing Consumption of Electricity

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The rollout of vaccines and reopening of economic activities have created fresh demand for utility services from the Commercial and Industrial (C&I) customer group. Per the U.S. Energy Information Administration (“EIA”), electricity consumption in the United States will increase 2.2% in 2021, after falling 3.9% in 2020. EIA expects U.S. electricity consumption to further grow 1% in 2022.

Per EIA, improvement in electricity consumption over the 2021-2022 time period will be due to steadily rising demand from the residential group and improving demand from the C&I group, wherein demand is yet to reach the pre-pandemic levels.

However, the scenario was quite different last year, when the pandemic outbreak adversely impacted economic activities and people were advised to stay back at home to break the chain of the virus. As a consequence, many industries including the Zacks Utility Electric Power industry suffered, as demand from the C&I group dropped significantly, thereby lowering the overall demand for utility services.

Since then, things have changed for the better for utilities. Utility companies are poised to enjoy the benefits of an increase in demand for electricity and are well prepared to easily meet the surge in demand. Utilities operating in the United States even during the pandemic invested millions of dollars, carried out infrastructure strengthening work and boosted their generation portfolio with clean energy assets.

Utilities operating in the United States have been focusing on the usage of clean energy sources to generate electricity and a few of them have declared plans to achieve zero emissions over the next few decades. EIA also forecasts that renewables’ share in U.S. generation will rise from 20% in 2020 to 21% and 22% in 2021 and 2022, respectively. Given the rising awareness against emissions and usage of new technology, it is expected that the share of clean sources will continue to increase in the U.S. electricity generation mix.

Even though the majority of utility companies are going to benefit from the expected surge in demand, we have picked out a few utility stocks that are expected to strengthen investors’ portfolio in the long run.

We have selected utilities CMS Energy Corporation (CMS - Free Report) , Avista Corporation (AVA - Free Report) and Otter Tail Corporation (OTTR - Free Report) , each currently holding a Zacks Rank #2 (Buy). All of them have outperformed the industry in the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price Performance

The Zacks Consensus Estimate for 2021 earnings per share for CMS Energy, Avista and Otter Tail has moved up 1%, 1.4%, and 4.1%, respectively, in the past 60 days. Similarly, there has been a positive trend in estimate revisions for 2022 for these companies over the same time frame. All these companies have taken initiatives to cut down carbon emissions and supply clean electricity to customers.

Long-term (three to years) earnings growth for CMS Energy, Avista and Otter Tail is currently projected at 6.6%, 5.4%, and 4.7%, respectively. Current dividend yield of CMS Energy, Avista and Otter Tail is 2.75%, 3.72% and 3.32%, respectively, better than Zacks S&P 500 composite’s average of 1.3%.

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In-Depth Zacks Research for the Tickers Above


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CMS Energy Corporation (CMS) - free report >>

Otter Tail Corporation (OTTR) - free report >>

Avista Corporation (AVA) - free report >>