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4 Stocks to Buy From the Prospering Electric Power Industry
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Zacks Utility – Electric Power industry stocks have been transitioning toward clean sources of fuel and focusing on lower carbon emissions. The introduction of the Inflation Reduction Act (“IRA”) 2022 will support the industry’s transition toward clean energy sources to produce electricity. Utilities are also focused on strengthening the grid as well as transmission and distribution infrastructure. The huge infrastructure of the utilities faces the impact of the hurricane season each year. Infrastructure enhancement around the year increases the resilience of the entire system, reduces outages and allows operators to restore power quickly for customers affected by storms.
NextEra Energy Inc. (NEE - Free Report) , with its expanding clean power generation portfolio and expanding customer base, renewable operations and well-chalked-out capital investments to strengthen infrastructure, offers an excellent opportunity to stay invested in the utility space. Other utilities worth adding to your portfolio are Consolidated Edison Inc. (ED - Free Report) , CenterPoint Inc. (CNP - Free Report) and NRG Energy Inc. (NRG - Free Report) .
About the Industry
The Utility – Electric Power industry involves the generation, transmission, distribution, storage and sale of electricity to customers. A substantial portion of utilities’ earnings is generated from regulated operations. Unless there is any major weather variation, demand for the services provided by utilities remains steady, regardless of economic cycles. A very hot summer and cold winter season increases demand for electricity. A clear transition is evident in this industry, with more companies declaring zero-emission goals. Research and development over the years have resulted in a substantial decline in the cost of setting up utility-scale renewable power projects, aiding in reducing emissions. The possibility of an interest rate cut announcement from the Fed in 2024 is going to be a tailwind for capital-intensive utilities.
3 Electric Power Industry Trends to Watch Out For
Transition Toward Cleaner Sources to Generate Power: The operators in the U.S. electric power sector are gradually moving toward cleaner sources of energy. Per the U.S. Energy Information Administration (EIA), the annual share of U.S. electricity generation from renewable energy sources will rise from 21% in 2022 to 24% in 2024 as a result of the continuing addition of solar and wind-generating capacity. The passage of the IRA will support and accelerate the utilities’ transition toward clean energy sources. It has removed the uncertainties relating to federal incentives provided for the use of renewable sources. The act entails an opportunity for a wide range of low-cost clean energy solutions in a predictable way for a long time and will create earnings visibility. Per EIA, solar and wind generation together in 2024 will overtake electric power generation from coal for the first year ever, exceeding coal by nearly 90 billion kilowatt-hours (kWh).
Demand and Price for Electricity Stable: Per EIA, electricity supply volumes in the United States will increase 2.4% in 2024 from the 2023 level. A major portion of the electricity will be generated from clean energy sources. EIA predicts the price of electricity to U.S. residential customers in 2024 to average 15.8 cents per kWh, about the same as in 2023, as reduced generation costs are offset by increases in distribution and transmission costs. EIA expects retail electricity prices in the commercial and industrial sectors for 2024 to be relatively unchanged from 2023. The stability in prices and demand are going to boost the prospects of the utilities.
Possibility of Interest Rate Decline is a Tailwind: Utilities, in order to maintain, upgrade and expand operations, approach capital markets for loans. The utilities have been enjoying near-zero interest rates for the past few years. However, multiple rate hikes by the Federal Reserve took the benchmark rate to the 5.25-5.50% range, which impacted the utility operators. However, in its last three meetings in 2023, the Fed did not increase the benchmark rate and indicated the possibility of rate cuts in 2024. The likely drop in interest rates in 2024 will be a positive for the utility operators as these companies are planning to invest large amounts in infrastructure upgrades and the addition of renewable sources of energy to produce electricity.
Zacks Industry Rank Indicates Bright Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates strong near-term prospects. The 58-stock Utility-Electric Power industry is housed within the broader Zacks Utilities sector and currently carries a Zacks Industry Rank #68, which places it in the top 27% of more than 252 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the earnings estimate revisions, it appears that analysts are showing confidence in this group’s earnings growth potential.
Before we present a few Utility - Electric Power stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and current valuation.
Industry Lags S&P 500 and Sector
The Utility Electric Power industry has lagged the Zacks S&P 500 and its own sector over the past 12 months. The industry has declined 8.9% compared with its sector’s decrease of 6.9%. The Zacks S&P 500 composite has gained 24.8% in the same period.
Price Performance (One year)
Industry's Current Valuation
On the basis of EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) TTM, which is a commonly used multiple for valuing Utility Electric Power companies, the industry is trading at 15.43X compared with the S&P 500’s 13.86X and the Utility sector’s 16.06X.
Over the past five years, the industry has traded as high as 20.92X, as low as 10.42X and at the median of 14.36X.
Industry EV/EBITDA TTM vs S&P 500 (5yrs)
Industry EV/EBITDA TTM vs Sector (5yrs)
4 Electric Power Industry Stocks to Bet On
NRG Energy: Houston, TX-based NRG Energy, along with its subsidiaries, operates as an integrated retail electricity and power generation company. Apart from making systematic investments, the company has acquired Vivint Smart Home and Direct Energy, which expanded its operation.
NRG’s long-term (three to five years) earnings growth is pegged at 13.75%. NRG’s current dividend yield is 2.97%, which is better than the Zacks S&P 500 composite group’s average of 1.6%. The Zacks Consensus Estimate for NRG Energy’s 2024 earnings per share of $5.96 implies an increase of 6.8% in the past 60 days. NRG Energy currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: NRG
NextEra Energy: Juno Beach, FL-based NextEra Energy is engaged in the generation, transmission, distribution and sale of electric energy. The company has a well-chalked-out capital deployment plan, which will be directed toward modernizing and strengthening the existing infrastructure and generating more electricity from clean sources to lower carbon emissions.
NEE’s long-term earnings growth is pegged at 8.18%. The current dividend yield for NEE is 3.08%. The Zacks Consensus Estimate for NextEra Energy’s 2024 earnings implies year-over-year growth of 8.76%. NextEra Energy currently has a Zacks Rank #2 (Buy).
Price and Consensus: NEE
Consolidated Edison: New York-based Consolidated Edison, through its subsidiaries, is engaged in regulated electric, gas and steam delivery businesses. The company has a capital expenditure plan of $14.6 billion for the 2023-2025 period.
ED’s current dividend yield is 3.56%. The Zacks Consensus Estimate for Consolidated Edison’s 2024 earnings suggests an increase of 0.6% in the past 60 days. ED’s long-term earnings growth is pegged at 2%. Consolidated Edison currently has a Zacks Rank #2.
Price and Consensus: ED
CenterPoint Energy: Houston, TX-based CenterPoint Energy provides electric transmission & distribution, natural gas distribution and competitive natural gas sales and services operations. CenterPoint Energy is investing to expand its operations to meet increasing electricity demand, backed by expanding commercial activity. In the next 10 years, the company plans to invest $44 billion to strengthen and expand its operation further.
CNP’s current dividend yield is 2.8%. The Zacks Consensus Estimate for CenterPoint Energy’s 2024 earnings suggests year-over-year growth of 8%. CNP’s long-term earnings growth is pegged at 7.51%. CenterPoint Energy currently has a Zacks Rank #2.
Price and Consensus: CNP
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4 Stocks to Buy From the Prospering Electric Power Industry
Zacks Utility – Electric Power industry stocks have been transitioning toward clean sources of fuel and focusing on lower carbon emissions. The introduction of the Inflation Reduction Act (“IRA”) 2022 will support the industry’s transition toward clean energy sources to produce electricity. Utilities are also focused on strengthening the grid as well as transmission and distribution infrastructure. The huge infrastructure of the utilities faces the impact of the hurricane season each year. Infrastructure enhancement around the year increases the resilience of the entire system, reduces outages and allows operators to restore power quickly for customers affected by storms.
NextEra Energy Inc. (NEE - Free Report) , with its expanding clean power generation portfolio and expanding customer base, renewable operations and well-chalked-out capital investments to strengthen infrastructure, offers an excellent opportunity to stay invested in the utility space. Other utilities worth adding to your portfolio are Consolidated Edison Inc. (ED - Free Report) , CenterPoint Inc. (CNP - Free Report) and NRG Energy Inc. (NRG - Free Report) .
About the Industry
The Utility – Electric Power industry involves the generation, transmission, distribution, storage and sale of electricity to customers. A substantial portion of utilities’ earnings is generated from regulated operations. Unless there is any major weather variation, demand for the services provided by utilities remains steady, regardless of economic cycles. A very hot summer and cold winter season increases demand for electricity. A clear transition is evident in this industry, with more companies declaring zero-emission goals. Research and development over the years have resulted in a substantial decline in the cost of setting up utility-scale renewable power projects, aiding in reducing emissions. The possibility of an interest rate cut announcement from the Fed in 2024 is going to be a tailwind for capital-intensive utilities.
3 Electric Power Industry Trends to Watch Out For
Transition Toward Cleaner Sources to Generate Power: The operators in the U.S. electric power sector are gradually moving toward cleaner sources of energy. Per the U.S. Energy Information Administration (EIA), the annual share of U.S. electricity generation from renewable energy sources will rise from 21% in 2022 to 24% in 2024 as a result of the continuing addition of solar and wind-generating capacity. The passage of the IRA will support and accelerate the utilities’ transition toward clean energy sources. It has removed the uncertainties relating to federal incentives provided for the use of renewable sources. The act entails an opportunity for a wide range of low-cost clean energy solutions in a predictable way for a long time and will create earnings visibility. Per EIA, solar and wind generation together in 2024 will overtake electric power generation from coal for the first year ever, exceeding coal by nearly 90 billion kilowatt-hours (kWh).
Demand and Price for Electricity Stable: Per EIA, electricity supply volumes in the United States will increase 2.4% in 2024 from the 2023 level. A major portion of the electricity will be generated from clean energy sources.
EIA predicts the price of electricity to U.S. residential customers in 2024 to average 15.8 cents per kWh, about the same as in 2023, as reduced generation costs are offset by increases in distribution and transmission costs. EIA expects retail electricity prices in the commercial and industrial sectors for 2024 to be relatively unchanged from 2023. The stability in prices and demand are going to boost the prospects of the utilities.
Possibility of Interest Rate Decline is a Tailwind: Utilities, in order to maintain, upgrade and expand operations, approach capital markets for loans. The utilities have been enjoying near-zero interest rates for the past few years. However, multiple rate hikes by the Federal Reserve took the benchmark rate to the 5.25-5.50% range, which impacted the utility operators. However, in its last three meetings in 2023, the Fed did not increase the benchmark rate and indicated the possibility of rate cuts in 2024. The likely drop in interest rates in 2024 will be a positive for the utility operators as these companies are planning to invest large amounts in infrastructure upgrades and the addition of renewable sources of energy to produce electricity.
Zacks Industry Rank Indicates Bright Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates strong near-term prospects. The 58-stock Utility-Electric Power industry is housed within the broader Zacks Utilities sector and currently carries a Zacks Industry Rank #68, which places it in the top 27% of more than 252 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the earnings estimate revisions, it appears that analysts are showing confidence in this group’s earnings growth potential.
Before we present a few Utility - Electric Power stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and current valuation.
Industry Lags S&P 500 and Sector
The Utility Electric Power industry has lagged the Zacks S&P 500 and its own sector over the past 12 months. The industry has declined 8.9% compared with its sector’s decrease of 6.9%. The Zacks S&P 500 composite has gained 24.8% in the same period.
Price Performance (One year)
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Industry's Current Valuation
On the basis of EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) TTM, which is a commonly used multiple for valuing Utility Electric Power companies, the industry is trading at 15.43X compared with the S&P 500’s 13.86X and the Utility sector’s 16.06X.
Over the past five years, the industry has traded as high as 20.92X, as low as 10.42X and at the median of 14.36X.
Industry EV/EBITDA TTM vs S&P 500 (5yrs)
Industry EV/EBITDA TTM vs Sector (5yrs)
4 Electric Power Industry Stocks to Bet On
NRG Energy: Houston, TX-based NRG Energy, along with its subsidiaries, operates as an integrated retail electricity and power generation company. Apart from making systematic investments, the company has acquired Vivint Smart Home and Direct Energy, which expanded its operation.
NRG’s long-term (three to five years) earnings growth is pegged at 13.75%. NRG’s current dividend yield is 2.97%, which is better than the Zacks S&P 500 composite group’s average of 1.6%. The Zacks Consensus Estimate for NRG Energy’s 2024 earnings per share of $5.96 implies an increase of 6.8% in the past 60 days. NRG Energy currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: NRG
NextEra Energy: Juno Beach, FL-based NextEra Energy is engaged in the generation, transmission, distribution and sale of electric energy. The company has a well-chalked-out capital deployment plan, which will be directed toward modernizing and strengthening the existing infrastructure and generating more electricity from clean sources to lower carbon emissions.
NEE’s long-term earnings growth is pegged at 8.18%. The current dividend yield for NEE is 3.08%. The Zacks Consensus Estimate for NextEra Energy’s 2024 earnings implies year-over-year growth of 8.76%. NextEra Energy currently has a Zacks Rank #2 (Buy).
Price and Consensus: NEE
Consolidated Edison: New York-based Consolidated Edison, through its subsidiaries, is engaged in regulated electric, gas and steam delivery businesses. The company has a capital expenditure plan of $14.6 billion for the 2023-2025 period.
ED’s current dividend yield is 3.56%. The Zacks Consensus Estimate for Consolidated Edison’s 2024 earnings suggests an increase of 0.6% in the past 60 days. ED’s long-term earnings growth is pegged at 2%. Consolidated Edison currently has a Zacks Rank #2.
Price and Consensus: ED
CenterPoint Energy: Houston, TX-based CenterPoint Energy provides electric transmission & distribution, natural gas distribution and competitive natural gas sales and services operations. CenterPoint Energy is investing to expand its operations to meet increasing electricity demand, backed by expanding commercial activity. In the next 10 years, the company plans to invest $44 billion to strengthen and expand its operation further.
CNP’s current dividend yield is 2.8%. The Zacks Consensus Estimate for CenterPoint Energy’s 2024 earnings suggests year-over-year growth of 8%. CNP’s long-term earnings growth is pegged at 7.51%. CenterPoint Energy currently has a Zacks Rank #2.
Price and Consensus: CNP