Utilities Outpace Market As Coal Does Battle With Gas

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Electrical utilities have powered ahead more than 16% since the start of the year. The gain easily tops the S&P 500's 7% advance. It was also the group's best performance -- by far -- in at least 10 years.

Consolidation and rationalization of industry capacity helped drive the stock price gains.Pepco Holdings ( POM ) led the advance, surging 31% in April after Chicago-basedExelon ( EXC ) agreed to buy the company for $6.9 billion. That brought the total for utility industry acquisitions over the past year to $14.9 billion, according to Bloomberg data.

The prevailing pressure on the industry has been the federal initiative increasing regulations on emissions from coal-fired power plants. As a result, older, lower-efficiency power plants have been shut down across much of the industry. In addition, strong supply and soft prices for natural gas have made gas-fired generators much more profitable. The combined result has been a vast reshuffling of the configuration and ownership of the U.S. power generation fleet.

American Electric Power ( AEP ) is widely considered to have the largest coal-fired armada among power producers. The Columbus, Ohio-based operation has increased its capital spending program to $11.5 billion through 2016, working to place more emphasis on transmission facilities and on the regulated side of its business. The goal: more stable pricing and revenue growth.

The company has put its long-term earnings growth target at between 4% and 6%.

Shares are up 15% so far this year. American offers a 3.7% dividend.

The company reports earnings July 25. Analyst consensus projects earnings growth will slow to 4%, down from an acceleration to 44% over the past three quarters.

Revenue is expected to slow to 12% growth, down from 21% in Q1 but otherwise the company's best since Q3 2010. Third-quarter estimates call for a 2% EPS slip and an 11% rise in revenue.



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: Personal Finance , Investing Ideas

Referenced Stocks: POM , EXC , AEP

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