Utilities undoubtedly play a major role in the development of a
nation. The sector is historically considered to be a less-risky
area to bet on given its defensive regulatory nature, which helps
the participants deliver steady earnings. The payment of regular
dividends also adds to the perceived defensiveness of the sector.
However, the utilities have been under the regulatory scanner for
quite some time now as environmentalists clamor about carbon
emissions and global warming issues, forcing the authorities to
take note. Notably, the power producers have the dubious reputation
of contributing one-third of the total greenhouse gas emissions in
In Jun 2014, the U.S. Environmental Protection Agency came out with
the Clean Power Plan proposal, which aims to lower carbon emission
from the power sector by as much as 30% in 2030 from 2005 levels.
If the proposal is accepted without modification, the utility
operators will either have to shut down their old fossil fuel units
or get new pollution control measures fitted in their generation
plants to stay in operation. In any case, regulatory compliance
will raise the operating costs of the utilities.
Moreover, regulatory setbacks, weigh upon utility stocks. A delay
in rate case decisions or approval of lower-than-requested rates by
the Public Service Commissions can potentially impact the
modernization and development plans of the regulated utilities. The
regulated utilities largely depend on timely and constructive
regulatory outcomes for infrastructure development which requires
huge capital outlay.
A report from Economic Development Research Group Inc. found an
alarming gap between the water infrastructural requirement and
actual investments planned for the coming years. The gap is
expected to reach $84 billion in 2020 and widen to $144 billion in
The report also revealed that without proper renewal or
replacement, nearly 44% of the existing pipelines will become too
poor for operation by 2020. The utility operators have begun to
invest in their ageing infrastructure, but it appears the
initiatives are too little too late.
So, taking the above factors into consideration, it would be a
prudent idea to find the laggards in the utility space and get rid
of them. Of course, if these are not in your portfolio, don't
consider a fresh bet.
3 Utility Stocks to Dump Right Now
We have screened utility stocks that are sell rated and thus seeing
negative earnings estimate revisions. These stocks have also showed
a negative return over the last 30 days.
We set the follow parameters on on
Zacks Stock Screener
• Zacks Rank greater than or equal to #4
• % Change F1 Est. (4 weeks) less than equal to
• % Price Change (4 Weeks) less than equal to
Here are the 3 stocks that passed through the screen:
) has a Zacks Rank #4 (Sell) and has lost nearly 19% over the last
4 weeks. In addition, the Zacks Consensus Estimate for 2014 has
gone down by nearly 15% in the past one month.
Houston, TX based Dynegy Inc. along with its subsidiaries produces
and sells energy and ancillary services in the U.S.
) carries a Zacks Rank #4. The stock lost nearly 2.7% over the last
four weeks. In addition, the Zacks Consensus Estimate has gone down
by nearly 8% in the last 30 days.
San Jose, CA based SJW Corp. is a water utility operating through
its two segments, Water Utility Services and Real Estate Service.
Pure Cycle Corporation
) is another Zacks Rank #4 stock that witnessed almost 1.9% loss
over the last four weeks. In addition, consensus estimates for 2014
are down by nearly 14.3% over one month.
Denver, CO based Pure Cycle Corporation operates and maintains
water and wastewater systems in the Denver metropolitan area.
Utilities will continue to remain an attraction to risk-averse
investors because of the above discussed benefits, but dumping the
weak stocks is necessary for maximizing returns from this sector.
Particularly, given the heightened regulatory challenges, it is
perhaps the right time to take such decision.
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DYNEGY INC-NEW (DYN): Free Stock Analysis
SJW CORP (SJW): Free Stock Analysis Report
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