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D or NEE: Which Electric Utility Stock Should You Invest In?

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Utility is one of the most stable sectors as it is not affected by market volatility. Utility companies are generally regulated and focus on domestic services. Investing in fundamentally strong, mature electric utility companies is safe as it provides stable earnings and cash flow rewards to investors through regular dividends. Currently, dividend yield of 3.34% from Zacks Utility - Electric Power industry is better than the S&P 500 index’s 1.75%.

As of now, 89% of S&P 500 companies have already reported their first-quarter 2018 results. Utility Sector registered 19.9% earnings growth and 8.8% revenue growth in the first quarter. The upside can be attributed to favorable weather conditions, tax reforms and higher return from regulated operations and infrastructure investments.

In this article, we run a comparative analysis on two prominent electric power utilities — Dominion Energy, Inc. (D - Free Report) and NextEra Energy, Inc (NEE - Free Report) — to figure which one performed better and is a suitable investment option right now.

Earnings & Surprise Trend

Dominion Energy reported first-quarter 2018 operating earnings of $1.14 per share, beating the Zacks Consensus Estimate of $1.03 by 10.7%. Earnings were near the top end of the guidance of 95 cents to $1.15. Operating earnings rose 17.5% from 97 cents reported in the prior-year quarter.

NextEra Energy’s first-quarter 2018 adjusted earnings were $1.94 per share, beating the Zacks Consensus Estimate of $1.78 by 8.9%. Earnings improved 10.9% year over year.


Dominion Energy reiterated its guidance and expects earnings per share in the range of $3.80-$4.25 in 2018. The company expects to complete the merger with SCANA later in 2018 and projects the earnings targets and credit objectives with alternative financing plans. Moreover, it is planning to reward shareholders with a 10% dividend hike in 2018 & 2019. To achieve an increase from 6% to 10% by 2020, the company has undertaken aggressive initiatives, which will help Dominion to cope with dismal MLP financial markets.

NextEra Energy’s adjusted earnings guidance for 2018 is pegged in the range of $7.45-$7.95.The company has commenced construction on the Mountain Valley Pipeline and anticipates it to come online from December 2018. Moreover, Florida Public Service Commission approved Dania Beach Clean Energy Center project. NextEra Energy is on track to achieve its goals.

Estimates Movement

In the last 30 days, the Zacks Consensus Estimate for Dominion Energy’s earnings in 2018 and 2019 moved up 1% and 0.7% respectively.

The Zacks Consensus Estimate for earnings in 2018 and 2019 moved up 0.3% and 0.12%, respectively, for NextEra Energy.

Dominion Energy has surpassed the Zacks Consensus Estimate in all the four trailing quarters.

Zacks Rank

Dominion Energy carries a Zacks Rank #3 (Hold). The company has a market capitalization of around $42.10 billion.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

NextEra Energy holds a Zacks Rank #3. It has a market capitalization of $74.79 billion.

Price Movement

Shares of Dominion Energy and NextEra Energy have lost 3.6% and 3.8%, respectively, against the industry’s rally of 0.43% in a month. Post earnings, price movement of the stocks was not that impressive.


How Utilities Are Shaping Up for Q2

Utilities' focus on strengthening existing infrastructure will allow them to serve customers more efficiently. Proper maintenance of the existing assets, upgrading as well as addition to transmission and distribution lines will increase resilience of operations and lower power outages. The usage of smart technology like drones for maintenance of infrastructure will help the utilities lower cost of operations.  The installation of smart meters is helping users make efficient use of electricity. Utilities are investing to produce more electricity from renewable energy sources and investing in battery storage project to increase resilience of the grid.

Utility Sector is expected to register earnings growth of 1.4% in second-quarter 2018 on the back of revenue growth of 7.7%. (For more details read our weekly Zacks Earnings Trends report)

The Verdict

NextEra Energy beat the Zacks Consensus Estimate while Dominion Energy surpassed the mark by a higher percentage.

The companies, holding a similar Zacks Rank, saw estimates for 2018 and 2019 move up in the last 30 days. Dominion Energy’s estimates have been treading higher for 2018 and 2019 in comparison to NextEra Energy.

Even though the companies are high-quality utilities, our verdict tilts toward Dominion Energy.

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