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4 Utilities Poised to Gain From Improving Electric Demand

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During 2020, the coronavirus pandemic disrupted the normal course of economic activities as social-distancing and work-from-home policies came into the picture. As a result, like other industries, the Zacks Utility Electric Power industry faced several challenges. This included lower demand from the commercial and industrial (C&I) group. Meanwhile, the utilities decided to continue with their services even if consumers failed to clear the utility bills due to financial distress.

The situation began to change from the beginning of 2021 with the rollout of vaccines, gradual reopening of the economy and better medical knowledge to deal with the COVID-19 infection. The U.S. unemployment rate was 14.8% in April 2020 after government imposed lockdown restrictions. Though the same improved to 5.4% in July 2021, reflecting improvement in the economic conditions, it remains tepid compared with the pre-pandemic levels. Moreover, the gross domestic product is expected to grow 6.8% in the full year.

Improving economic conditions are helping utilities as it is witnessing the revival of demand for utility services from the C&I customer group. Per the U.S. Energy Information Administration (EIA), the U.S. retail electricity sales are likely to inch up 2.7% in 2021 after sliding 3.9% in 2020. Per EIA, higher electricity consumption will be owing to a steady rise in demand from the residential group and improving demand from the C&I group.

Companies are poised to benefit from buoyant demand and are even investing heavily amid the pandemic to maintain and upgrade the infrastructure. The Federal Reserve’s decision to keep interest rates unchanged this year will help the domestic-focused, regulated and capital-intensive utilities to procure funds at a cheaper rate for their large infrastructure projects. Proper cost management and the new-rate approval in some jurisdictions will also assist the utilities.

The industry recorded 7.6% and 14.1% growth in earnings and revenues, respectively, in the second quarter of 2021. Also, both metrics are likely to improve 0.3% and 8.2% in the current quarter. For more details, you can read our weekly Earnings Trendss article. Apart from these, companies from this industry seem an attractive option for investors as they continue to boost shareholder value via regular dividends on the back of stable earnings.

4 Utility Stocks

We picked a few stocks from the industry that have returned more than the Zacks S&P 500 composite’s 17.6% growth in the past six months. These stocks carry a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

These companies pay regular dividends to their shareholders and have better dividend yields than the Zacks S&P 500 composite’s figure of 1.22%. We added some more criteria for the selection of utilities from our proprietary Zacks Stock Screener.

Six Months Price Performance

Zacks Investment Research
Image Source: Zacks Investment Research

Duke Energy Corporation (DUK - Free Report) 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. During the 2021-2025 time period, the company projects to spend capital worth $59 billion, which includes clean-energy generation and transmission investments across the Carolinas, Indiana and Florida.

Six-Months’ Return =20%

Dividend Yield =3.77%

Long-Term Earnings Growth (three to five years) = 5.29%

Estimate Movement =The Zacks Consensus Estimate for 2021 earnings has moved 0.6% north to $5.20 in the past 60 days.

Hawaiian Electric Industries, Inc. (HE - Free Report) is a holding company with subsidiaries engaged in the electric utility, banking and other businesses operating primarily in the state of Hawaii. For the 2021-2023 period, it intends to invest up to $1.2 billion.

Six-Months’ Return =23%

Dividend Yield =3.12%

Long-Term Earnings Growth (three to five years) = 7.26%

Estimate Movement =The Zacks Consensus Estimate for 2021 earnings has moved 9.1% north to $2.15 in the past 60 days.

FirstEnergy Corporation (FE - Free Report) is a diversified energy company. Through its subsidiaries and affiliates, it engages in the transmission, distribution and generation of electricity. In 2021, it expects to spend up to $2.9 billion while in 2022, it estimates to invest up to $2.9-$3.2 billion.

Six-Months’ Return =18.5%

Dividend Yield =4.01%

Long-Term Earnings Growth (three to five years) = 4.17%

Estimate Movement =The Zacks Consensus Estimate for 2021 earnings has moved 0.8% north to $2.55 in the past 60 days.

CenterPoint Energy, Inc. (CNP - Free Report) is a domestic energy delivery company that provides electric transmission & distribution, natural gas distribution, and competitive natural gas sales and services operations. The company plans to invest $16.73 billion from 2021 through 2025.

Six-Months’ Return =28.2%

Dividend Yield =2.55%

Long-Term Earnings Growth (three to five years) = 4.81%

Estimate Movement =The Zacks Consensus Estimate for 2021 earnings has been revised 4.2% upward to $1.49 in the past 60 days.