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NEE or D: Which Utility Stock is Better Placed for 2H19?

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Utility stocks are one of the safest investment options. Primarily, domestic-focused, regulated, mature utility companies provide basic amenities like electricity, gas and water to residential, industrial and commercial customers. Utilities are favored by investors due to steady returns and their ability to pay dividend and buy back shares.

Steady increase in interest rates is a concern for capital-intensive Utility companies. Interest rates have increased nine times since December 2015, which in turn has increased capital servicing expenses of these utilities and curbed their ability to pay out dividend. However, the Federal Reserve’s present stance to keep interest rates unchanged is indeed good news for the space.

Industry players are utilizing new technology for the maintenance of infrastructure, a case in point being the installation of smart meters to help users make efficient use of electricity. Ongoing investment in transmission and distribution operations continues to increase grid resilience. Investment in battery storage projects is gaining importance due to a rapid decline in costs and comparative benefits that it provides to utility players.

Utilities are making considerable investment to produce more electricity from renewable energy sources. Proper cost management, new electric rates and customer growth should continue to help the industry players to maintain operational stability. However, an aging workforce and adverse weather conditions are concerns for utility players.    

The Utility Sector is expected to register earnings growth of 2.4% in second-quarter 2019 on the back of revenue improvement of 2.5%. The sector is expected to continue the momentum during the second half of 2019. (For more details, read our Earnings Outlook report)

Amid such favorable trends existing in the utility space, we run a comparative analysis of two prominent electric power utilities — Dominion Energy, Inc. (D - Free Report) and NextEra Energy, Inc. (NEE - Free Report) — to figure which one is better poised right now.

Earnings Surprise Trend & Long-Term Growth

Dominion Energy reported average positive surprise of 2.47% in the last four quarters. Its long-term earnings growth (three to five years) is projected at 4.82%.

NextEra Energy delivered average positive surprise 2.63% in the last four quarters. Its long-term earnings growth is pegged at 8.02%.

Zacks Rank & Earnings ESP

Dominion Energy currently carries a Zacks Rank #3 (Hold). The company has a market capitalization of around $62.07 billion.

NextEra Energy also holds a Zacks Rank #3. It has a market capitalization of $100.53 billion.

Earnings ESP of Dominion Energy and NextEra Energy for second-quarter 2019 is -1.86% and +1.80%, respectively.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

A stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 to beat estimates. NextEra Energy has the required combination. You can see the complete list of today’s Zacks #1 Rank stocks here.

Guidance

For 2019, Dominion Energy expects earnings per share in the range of $4.05-$4.40 compared with $4.05 recorded in 2018. The midpoint of the guided range is $4.225, above the current Zacks Consensus Estimate for the period of $4.19.  

NextEra reiterated its 2019 adjusted earnings guidance in the range of $8.00-$8.50. The midpoint of the guided range is $8.25, below the current Zacks Consensus Estimate for the period of $8.36.  

Estimates Movement

In the past 30 days, the Zacks Consensus Estimate for Dominion Energy’s earnings for 2019 and 2020 has remained unchanged at $4.19 and $4.42, respectively.

In the same time period, the Zacks Consensus Estimate for NextEra Energy’s 2019 and 2020 earnings has moved up 0.2% and 0.4%, respectively.

Price Movement

Shares of Dominion Energy and NextEra Energy have gained 12.5% and 19.2%, respectively, compared with the Zacks Utility – Electric Power industry’s 12.4% rally.

Price Performance (Six months)



The Verdict

Considering NextEra Energy’s earnings surprise history, positive movement in estimates and better return over the past six months, it seems to be a better utility stock to retain in your portfolio than Dominion Energy at the moment.

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Dominion Energy Inc. (D) - free report >>

NextEra Energy, Inc. (NEE) - free report >>