Utility services undoubtedly play a vital role in shaping the
economic progress of a nation, as an abundant supply of power at a
reasonable price keeps the wheels of development rolling. Demand
for industrial, commercial and residential utility services sees an
upward spike when a country is in good economic health.
Regulated operations like the utilities also ensure a steady stream
of returns. This is particularly important when the broad
geographical picture is fraught with danger. Instability brings in
insecurity which drives away business. Since the global economies
are interlinked, the ongoing crisis in Ukraine and rising
possibility of imposing greater sanctions on Russia could adversely
impact the European markets. Russia does most of its trade with the
European Union (EU). Now if EU spurns gas imports from Russia (EU
imported 160 billion cubic meters of gas in 2013) it could
adversely impact the economy of the region.
If we add to this the increasing tension in the Gaza strip and the
instability and ongoing crisis in Syria, Iraq and Egypt, the
picture gets even murkier. Investors will certainly shy away from
these troubled areas and rather look for stable returns. The U.S.
utility stocks would therefore be a safe bet for risk-averse
Besides offering steady returns, utilities diligently share profits
with their shareholders through regular dividend payments. This was
even true during the height of the latest economic crisis. This
ability adds to, in no little measure, the perceived defensiveness
of the sector.
The only major headwind that we see for electricity generating
utility companies is the implementation of stricter environmental
legislations. Environmental compliance will necessarily flare up
costs for the utilities, particularly for those relying on
coal-fired generation. Recently, the U.S. Environmental Protection
Agency (EPA) has proposed a Clean Power Plan, the primary objective
of which is to cut down emissions from existing power plants by 30%
over the 2005 to 2030 time frame.
The utilities are however not to be cowered by these regulations.
They have gradually shifted their emphasis towards natural gas and
alternative resources to produce power. Producers using coal are
also installing pollution control measures to lower emissions.
Efforts are being made to harness new eco-friendly sources to
generate electricity and lower the carbon footprint.
Given the advantages of investing in the Utility space, let's dig
into a few utility companies that are expected to beat earnings
How to Pick the Right Stocks?
With a large number of operators in the utility space, selecting
the correct stocks may appear to be a daunting task. This is where
we fall back on our proprietary methodology. It's fairly simple -
stocks with the combination of a favorable Zacks Rank - Zacks
Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) - and a positive Zacks
are the ones that are likely to surpass earnings estimates in the
Earnings ESP is our proprietary methodology for determining stocks
that have high probability of delivering earnings surprises in
their next earnings announcement. It shows the percentage
difference between the Most Accurate Estimate and the Zacks
Consensus Estimate. Our research shows that for stocks with this
combination, the chance of a positive earnings surprise is as high
Here are three utility stocks that are currently equipped with the
right combination of elements to post an earnings beat.
) has a Zacks Rank #1 and an Earnings ESP of +14.04%. The Zacks
Consensus Estimate for the company's second-quarter earnings is 57
cents per share, reflecting an expected year-over-year gain of
Ameren Corporation has a history of beating earnings estimates. The
company delivered positive earnings surprises in three out of the
trailing four quarters with an average beat of 18.69%. The
long-term earnings growth is pegged at 7.8%. The current dividend
yield of the company is 4.02%, much higher than the industry
average of 2.01%.
St. Louis, MO based Ameren Corporation along with its units,
generates and distributes electricity and natural gas to
residential, commercial, industrial and wholesale end markets in
Missouri and Illinois. The company delivers electricity to more
than 2.4 million customers and natural gas to about 0.9 million
customers. The company is scheduled to announce its second quarter
2014 financial results on Aug 5.
Consolidated Edison, Inc.
) has a Zacks Rank #2 and an Earnings ESP of +9.26%. The Zacks
Consensus Estimate for the company's second-quarter earnings is 54
cents per share, in line with the year-ago number.
Consolidated Edison too has beaten earnings estimates fairly
regularly. The company delivered positive earnings surprises in
three out of the trailing four quarters with an average beat of
4.08%. The long-term earnings growth is pegged at 2.75%. The
current dividend yield of the company is 4.42%, higher than the
industry average of 2.01%.
New York City based Consolidated Edison, Inc. is a diversified
utility holding company with subsidiaries engaged in both regulated
and unregulated businesses. Through its two regulated subsidiaries,
Consolidated Edison Company of New York (CECONY) and Orange and
Rockland Utilities (O&R), the company supplies electricity and
gas to nearly 4.8 million consumers. The company is scheduled to
announce its second quarter 2014 financial results on Aug 7.
) has a Zacks Rank #2 and an Earnings ESP of +2.41%. The Zacks
Consensus Estimate for the company's second-quarter earnings is 83
cents per share, which reflects an expected year-over-year gain of
The company's earnings surprise history looks unblemished over the
trailing last four quarters, with an average beat of 17.92%. The
long-term earnings growth is pegged at 2.63%. The current dividend
yield of the company is 2.51%, higher than the industry average of
Rosemead, CA based Edison International generates and supplies
electricity through its subsidiaries. Edison International's
distribution network of nearly 53,000 miles of overhead lines and
37,000 miles of underground lines and 800 distribution substations
in California help it to serve 5 million customers. California
incidentally has a constructive regulatory environment with much
emphasis given on renewable generation. The company is scheduled to
announce its second quarter 2014 financial results on Jul 31.
What Lies Ahead?
Government regulations and new pollution standards for power
generation will continue to alter the generation mix. But the
bottom line is that the demand for utilities can never turn
In the first quarter of 2014, earnings for the Utility sector were
up 18.0% on 11.2% higher revenues. The Utilities are again expected
to record a double-digit earnings growth rate of 11.7% this season.
Want the latest recommendations from Zacks Investment Research?
Today, you can download
7 Best Stocks for the Next 30 Days.
Click to get this free report >>
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
AMEREN CORP (AEE): Free Stock Analysis Report
CONSOL EDISON (ED): Free Stock Analysis Report
EDISON INTL (EIX): Free Stock Analysis Report
To read this article on Zacks.com click here.