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Xcel Energy's (XEL) Focus on Renewable Expansion Bodes Well

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Xcel Energy Inc. (XEL - Free Report) benefits from systematic investments in infrastructure projects, focus on renewable expansion and demand driven by improvement in economy.

For 2019, earnings estimates inched up 0.4% to $2.62 per share in the past 30 days. Additionally, long-term earnings growth of the company is pegged at 5.42%,

In the past 12 months, shares of the company have returned 20.8% compared with the industry’s growth of 11%.

What’s Driving the Stock?

Xcel Energy continues to invest substantially in its utility assets to provide reliable services to its customers and effectively meet rising electricity demand. The company is planning to invest $22 billion from 2020 to 2024. Of the total amount, 28% and 24% is allocated toward electric distribution and electric transmission, respectively. Also, the company will invest 16% for electric generation, 13% for natural gas, 9% for renewables and 10% for others.

The company targets a dividend payout ratio of 60-70% and aims to increase shareholders’ value by increasing dividend rate by 5-7% annually. In February, Xcel Energy increased quarterly dividend by 6.6%. The company’s strong cash flow generation capacity enables it to pay dividend and increase the same at regular intervals. Moreover, the trend of increasing customer growth is expected to drive demand.

Xcel Energy is focusing on the steel-for-fuel initiative that enables the addition of renewables and reduces bills. Nearly 2,372 megawatt (MW) of new wind projects has received regulatory approval and its construction is underway. In July 2019, the company filed the Minnesota Resource Plan. This includes early retirement of coal plants, starting with King in 2028, Sherco 3 in 2030 and complete exit from coal in the Upper Midwest by the end of 2030. The plan includes addition of 4,000 MW of solar and 1,200 MW of wind powered plants in its generation portfolio. In line with its effort to lower emission, the company announced target of 80% carbon reduction by 2030 from 2005 level. In the long run, the company expects to deliver 100% carbon free energy by 2050 in Minnesota.

However, high debt levels, risk related to cyber security breaches and strict environmental legislations are concerns.

Zacks Rank

The stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Some better-ranked stocks from the same industry are Eversource Energy (ES - Free Report) , FirstEnergy Corporation (FE - Free Report) and Fortis Inc (FTS - Free Report) . All the three stocks hold a Zacks Rank #2 (Buy).

Long-term earnings growth of Eversource, FirstEnergy and Fortis is pegged at 5.6%, 6% and 5.7%, respectively.

Eversource, FirstEnergy and Fortis delivered an average positive earnings surprise of 2.39%, 2.87% and 4.14% in the last four quarters, respectively.

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