I nvestors have shunned utility stocks in recent months as the prospect of higher interest rates erodes their appeal. But some are making a comeback.Westar Energy ( WR ), the largest electric utility in Kansas, is in buying range after clearing a 41.40 buy point of a cup-with-handle base Nov. 11. It's also just 3% off a 52-week high.
Like most utilities, Westar's revenue and earnings growth have risen at a slow-and-steady pace of 5% and 1%, respectively, in the past three years. But state regulators gave Westar approval to raise rates by about 4% this month to pay for plant upgrades.
"Cost control and new rates will drive reasonable growth into 2016," JPMorgan said in a Nov. 6 research note. JPMorgan, which has a neutral rating on the stock, also said it sees improvement in 2017 amid cost-cutting and new transmission growth.
Westar is up about 2% this year, roughly in line with the S&P 500, after recovering from a summer swoon. Its long-term dividend growth rate is 3% and the annualized yield is 3.4%, above the S&P 500 average of about 2%. Unlike most companies, Westar continued to hike its payout during the 2008-09 recession.
UBS said Nov. 5 that electric utilities may struggle in coming years as a weak economy and increased energy efficiency cut demand. "We expect cost-cutting" and mergers aimed at cost-sharing to be a key theme, it said.
Despite the headwinds, utility stocks have been on the upswing since early September, whenTeco Energy ( TE ) popped 25% after Canada-based energy company Emera said it would buy the utility for about $10 billion.
Other stocks in the Dividend Leaders screen that have rebounded include Missouri -basedAmeren ( AEE ), which is approaching a 44.81 buy point of a cup-with-handle base.
Eversource Energy ( ES ), based in Massachusetts, is also working on a cup-with-handle base. The buy point is at 52.95. Indiana-basedNisource ( NI ) is near a new high.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
