Domestic-focused regulated utility stocks are among the safest choice of investment. Steady performance and regular dividend payment make these stocks an alternative choice for investment over bonds. Despite risks from the new variant, the reopening of economic activities across the globe has led to renewed demand as more electricity is being consumed by the Commercial and Industrial groups. The stocks from the
Zacks Utility – Electric Power industry are gaining from the increase in demand. Amid improving demand, we run a comparative analysis of two major electric power utilities, namely WEC Energy Group Inc. ( WEC Quick Quote WEC - Free Report) and Public Service Enterprise Group Incorporated ( PEG Quick Quote PEG - Free Report) , to determine which stock is better poised right now. The U.S. Energy Information Administration (“EIA”) forecasts the U.S. residential electricity price to average 14.6 cents/kWh between June and August 2022, up 4.8% from the comparable 2021 period. The forecast summer commercial sector price averages 12.0 cents/kWh, up 4.7% year over year and the forecast industrial sector price averages 7.7 cents/kWh, up 3.2% year over year. EIA also projects electricity demand to increase to 4,010 billion kilowatt-hours (kWh) in 2022 and 4,019 billion kWh in 2023 from 3,930 billion kWh in 2021. Improving demand and increasing per unit prices are going to drive these capital-intensive utilities. The increase in interest rates from the near-zero levels is likely to have an impact on the capital servicing costs of the utilities and impact margins. However, the utilities are expected to overcome this negative through cost management, improvement in operational efficiency and resiliency of infrastructure. Our weekly Earnings Trends report indicates a 1.2% decline in 2022 earnings but revenues are expected to improve 0.1%. Utilities are not only focusing on improving their infrastructure but also investing in clean and sustainable energy. Many utilities have pledged to become emission-less companies by 2050. WEC Energy currently has a market capitalization of $32.4 billion and Public Service Enterprise Group has a market capital of $32.3 billion. Both the stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Estimate Movement
The Zacks Consensus Estimate for 2022 earnings per share of WEC Energy and Public Service Enterprise has moved 0.7% and 0.3% north to $4.37 and $3.48, respectively, in the past 60 days.
While the Zacks Consensus Estimate for WEC Energy’s 2023 earnings per share has moved 0.2% north to $4.59, the same for Public Service Enterprise has declined 1.6% to $3.66 in the past 60 days. Earnings Surprise Trend & Long-Term Growth
WEC Energy delivered a trailing four-quarter surprise of 8.64%, on average. Its long-term (three to five years) earnings growth is projected to be 6.08%.
Public Service Enterprise delivered a trailing four-quarter surprise of 6.95%, on average. Its long-term earnings growth rate is pegged at 4.57%. Return on Equity (ROE)
ROE measures a company’s efficiency in utilizing shareholders’ funds. WEC Energy and Public Service Enterprise have a trailing 12-month ROE of 12.17% and 12.94%, respectively. The industry’s ROE for the same period came in at 10.44%.
Debt to Capital
The long-term debt-to-capital ratio is a good indicator of a company’s financial position and shows how much debt is used to run its business. WEC Energy has a debt to capital of 54.1%, lower than Public Service Enterprise’s 55.5%.
The times interest earned (TIE) ratio of WEC Energy at the end of first-quarter 2022 was 4.4. Public Service Enterprise’s TIE at the end of first-quarter 2022 was (2.6). A greater than one TIE ratio reflects the companies’ financial strength and ability to meet debt obligations. Capital Investments
These utilities are making regular and systematic investments to improve and strengthen their infrastructure, which lowers the probability and duration of outages in adverse weather conditions.
WEC Energy has plans to invest $17.7 billion in the 2022-2026 time frame to further improve its infrastructure, while Public Service Enterprise expects to invest $15-$17 billion in the 2021-2025 period. Dividend Yield
WEC Energy has a dividend yield of 2.84%, while Public Service Enterprise has a yield of 3.34%. The utility electric power industry’s average dividend yield is 3.21%.
In the past six months, shares of WEC Energy have gained 6.4% while Public Service Enterprise has lost 1.9%. The industry has recorded 1% growth in the said period.
Image Source: Zacks Investment Research Result
Both the utilities seem to be a promising choice for the rest of the year. Also, their capital budgets are reserved for more clean renewable sources, thereby strengthening and expanding their infrastructure to increase the reliability of their services as well as lowering emissions.
Given the rising estimates, lower debt usage and a solid capital investment plan, WEC Energy looks better positioned for the upcoming period even though its ROE is marginally lower than Public Service Enterprise.