How will these profitable utility stocks respond to the new EPA rules?

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By James Dennin for Kapitall.

In what's already been dubbed the "Obamacare" of climate change, President Obama announced over the weekend an ambitious new carbon emission reduction program that would focus heavily on power plants. 

The plan requires no legislative action, as the Obama administration is using a lesser-known stipulation of the 1970 Clean Air Act to expand existing EPA regulations. 

The goal is ambitious: a 30% reduction to carbon emissions by 2030 that focuses primarily on existing power plants.

The EPA is expected to release the details of the plan, including the specifics regarding new regulations and the different ways utilities will be able to accomodate them, some time this month. 

Utilities have performed extremely well this year so far, as the bond market propped up high-yielding stocks. However, utilities are currently waiting nervously for the details of the new plan as it is still unclear who their new rivals could be

Higher energy costs could couple with expensive new R&D requirements that would put pressure on the industry. Smaller companies with more freedom to focus their efforts  have already started to invest heavily in updating their grids and improving efficiency. They would have a head start on incumbents as the proposed regulations work their way through the courts. 

In the event that Obama's new climate change initiative becomes the law of the land, utilities with better finances will have an easier time absorbing the new costs. So we screened the US utility sector for companies with above-average profits by looking at for firms with  gross margins, operating margins, and pre-tax margins above the industry average for the trailing 12 months ( TTM ).

This left us with 5 profitable utility stocks on our list. Do you think the utility sector will be affected by Obama's new climate change program? Use the list below to begin your analysis and let us know what you think in the comments. 

Click on the interactive chart to view data over time. 

1. Cleco Corporation ( CNL , Earnings , Analysts , Financials ): Engages in the generation, transmission, distribution, and sale of electricity in Louisiana. Market cap at $3.14B, most recent closing price at $52.03.  

TTM gross margin at 40.15% vs. industry average at 30.02%.

TTM operating margin at 26.94% vs. industry average at 19.19%.

TTM pretax margin at 21.02% vs. industry average at 12.16%.  

2. Dominion Resources, Inc. ( D , Earnings , Analysts , Financials ): Engages in producing and transporting energy in the United States. Market cap at $40.11B, most recent closing price at $68.96.  

TTM gross margin at 33.31% vs. industry average at 24.77%.

TTM operating margin at 24.09% vs. industry average at 15.68%.

TTM pretax margin at 17.79% vs. industry average at 11.03%. 

3. Public Service Enterprise Group Inc. ( PEG , Earnings , Analysts , Financials ): Operates in the energy industry primarily in the northeastern and mid Atlantic United States. Market cap at $19.72B, most recent closing price at $38.96.  

TTM gross margin at 34.88% vs. industry average at 24.77%.

TTM operating margin at 23.06% vs. industry average at 15.68%.

TTM pretax margin at 20.77% vs. industry average at 11.03%.  

4. Pinnacle West Capital Corporation ( PNW , Earnings , Analysts , Financials ): Provides retail and wholesale electric services primarily in the State of Arizona. Market cap at $6.12B, most recent closing price at $55.42.  

TTM gross margin at 36.14% vs. industry average at 30.02%.

TTM operating margin at 24.2% vs. industry average at 19.19%.

TTM pretax margin at 19.00% vs. industry average at 12.16%.

5. Wisconsin Energy Corp. ( WEC , Earnings , Analysts , Financials ): Engages in the generation, distribution, and sale of electric energy and steam. Market cap at $10.27B, most recent closing price at $45.52.  

TTM gross margin at 30.02% vs. industry average at 24.77%.

TTM operating margin at 22.06% vs. industry average at 15.06%.

TTM pretax margin at 19.77% vs. industry average at 11.03%.  

(List compiled by James Dennin. Monthly returns sourced from Zacks Investment Research, TTM Margins sourced from Fidelity.)

Kapitall Wire is a division of New Kapitall Holdings, LLC. Kapitall Generation, LLC is a wholly owned subsidiary of New Kapitall Holdings, LLC. Kapitall Wire offers free investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by New Kapitall Holdings, LLC, and its affiliate companies.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: TTM

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