Amid market uncertainty due to U.S.-China trade dispute and rising tension in the Middle East, investing in Utility stocks can be a safe option. In view of the current scenario, the mature Zacks Utility Sector is expected to report 2.6% year-over-year earnings growth in second-quarter 2019, riding on 2.5% revenue growth. For more details, refer to our latest Earnings Preview.
New rates in service territories, customer growth, and effective management and control of expenses will have a positive impact on earnings of utilities. The players are focused on producing more electricity from renewable sources and battery storage projects to meet customers’ needs during adverse situations. Courtesy of these initiatives, the U.S. Energy Information Administration forecasts U.S. energy-related carbon dioxide emissions to decline 2.2% year over year in 2019, following a 2.7% rise in 2018.
Non-availability of replacement of services provided by utilities is the biggest driving force behind this sector’s growth. Mature utilities gain from new technologies to maintain transmission and distribution lines, introduction of smart meters in their service territories and regular measures to improve the resilience of services.
Interest rates continue to be a concern for capital-intensive utility stocks. Interest rate hikes increase utilities' cost of capital, thereby impacting margins and compromising on their ability to pay out or hike dividends. However, the cautious approach of Federal Reserve on rate hikes — declaring no more hikes in 2019 and the possibility of the same in the near future — comes as a breather for utilities.
Picking Winners in the Utility Space
Choosing the right stock for one’s portfolio from too many participants is certainly a tough job. An easy way to streamline the list is by selecting stocks with a positive Earnings ESP and a solid Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Our research shows that stocks with the perfect combination of the two key ingredients have 70% chances of coming up with a positive earnings surprise.
Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.
For investors seeking to apply this proven model to their portfolio, we have highlighted four Utility stocks that are likely to beat on earnings in the upcoming releases.
Our Utility Picks
NextEra Energy Inc. (NEE - Free Report) has an Earnings ESP of +2.22% and a Zacks Rank #3. The company’s earnings topped estimates in the last four quarters, with the average being 2.63%. It is slated to release second-quarter earnings on Jul 24, before market open. You can the complete list of today’s Zacks #1 Rank stocks here.
NextEra Energy, Inc. Price and EPS Surprise
ONEOK Inc. (OKE - Free Report) has an Earnings ESP of +0.64% and a Zacks Rank #3. The company’s earnings topped estimates in the last four quarters, with the average being 3.17%. It is slated to release second-quarter earnings on Jul 30, after the market closes.
Sempra Energy (SRE - Free Report) has an Earnings ESP of +7.63% and a Zacks Rank #3. The company’s average four-quarter positive surprise is 10.99%. It is slated to release second-quarter earnings on Aug 5.
Southwest Gas Corporation (SWX - Free Report) has an Earnings ESP of +14.29% and a Zacks Rank #3. The company’s average positive surprise in the last four quarters is 30.36%. It is slated to release quarterly earnings on Aug 6.
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