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Xcel Energy's (XEL) Systematic Capital Investments Bode Well

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Xcel Energy Inc.’s (XEL - Free Report) consistent investments in infrastructure projects, focus on renewable expansion and demand driven by improvement in economic condition are growth catalysts.

We issued an updated research report on this Zacks Rank #3 (Hold) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company reported a negative earnings surprise of 5.08% in the last reported quarter. However, long-term earnings growth of the company is pegged at 5.90%.

What’s Driving the Stock?

The company exited first-quarter 2020 with a total liquidity of nearly $3.1 billion. Divestiture proceeds and equity issue can increase the liquidity level to nearly $4.5 billion. This will enable the company to meet its current obligations.  Its times interest earned ratio was pegged at 2.9 in the first quarter, flat on a sequential basis. This strong ratio indicates that the firm will be able to meet debt obligations in the near future without any difficulties.

Xcel Energy continues to invest substantially in its utility assets to provide reliable services to its customers and effectively meet rising electricity demand. It expects to deliver 2020 earnings in the range of $2.73-$2.83 per share, in line with its long-term earnings growth expectation of 5-7%. 

Xcel Energy targets a dividend payout ratio of 60-70% and aims to boost shareholders’ value by increasing dividend rate by 5-7% annually. In the first quarter, the company hiked quarterly dividend by 6.2%. Strong cash flow generation capacity of the company enables it to pay dividend and increase the same at regular intervals.

However, the company’s profitability depends on the ability of its utility subsidiaries to recover costs. Any changes in regulation may impair the ability of these utility subsidiaries to recover costs from their customers.Risk related to cyber security breaches and strict environmental legislations are concerns.

Price Performance

In the past 12 months, shares of the company have gained 2.4% against the industry’s decline of 7.2%.

Stocks to Consider

A few better-ranked stocks from the same sector are Southwest Gas Corporation (SWX - Free Report) , Sempra Energy (SRE - Free Report) and NextEra Energy, Inc. (NEE - Free Report) . All three stocks hold a Zacks Rank #2 (Buy) at present.

The long-term earnings growth rate of Southwest Gas, Sempra Energy and NextEra Energy is pegged at 6%, 6.90% and 7.70%, respectively.

Southwest Gas, Sempra Energy and NextEra Energy delivered a positive earnings surprise of 3.92%, 32.76% and 7.69%, respectively, in the last reported quarter.

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