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3 Utilities to Add to Your Portfolio for Strong 2022 Performance

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The pandemic caused immense economic distress globally in 2020. Courtesy of an increase in the fully vaccinated population and enhanced medical knowledge, the spread of coronavirus is now restricted. This development has helped in the reopening of economic activities and boosted business conditions globally. The Zacks Utility – Electric Power industry prospects look better for 2022, as the demand for utility services from the Commercial and Industrial group is picking up.

The reopening of economic activities is generating new opportunities and the unemployment rate in the United States continues to drop, thereby creating fresh demand for electricity from different customer groups. The unemployment rate at November-end was 4.2%, reflecting a 40-basis point improvement from 4.6% registered in October 2021. Per Trading Economics, this is the lowest jobless rate since February 2020, as the number of unemployed persons fell by 542,000 to 6.9 million.

The Gross Domestic Product (GDP) of the United States improved 2.1% for third-quarter 2021, following a 6.7% increase in the second quarter. The improvement in GDP also creates a higher need for energy, thereby boosting the demand for electricity. The outbreak of a new variant of coronavirus might delay the pace of reopening of economic activities but will not result in lockdown as experienced in 2020.

The U.S. Energy Information Administration (“EIA”) forecasts that after declining 4% in 2020, retail sales for electricity would increase 3.6% in 2021 and further improve 0.2% in 2022. The EIA also forecasts retail sales of electricity in the commercial and industrial sectors to increase 3.4% and 6.7%, respectively, in 2021. For 2022, EIA forecasts total electricity consumption from the commercial and industrial sectors to grow 0.9% and 2.4%, respectively.

The Zacks Utilities sector registered earnings growth in the first three quarters of 2021. For the third quarter, earnings growth was 11% on the back of a 12.1% improvement in revenues. Our weekly Earnings Trends report indicates 4.8% growth in earnings in 2021, backed by 12% growth in revenues. This positive trend is expected to continue in 2022, with an overall earnings growth of 6%, backed by 1.7% growth in revenues.

Let’s focus on three utilities currently having a Zacks Rank #2 (Buy) that can boost your portfolio going into 2022. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CenterPoint Energy Inc. CNP, Alliant Energy Corporation LNT, and IDACORP Inc. IDA delivered an average earnings surprise of 24.5%, 4.4%, and 5.2%, respectively, in the last four quarters. The current dividend yield of CNP, LNT, and IDA is 2.52%, 2.83%, and 2.81%, respectively. Return on equity of CNP, LNT, and IDA stands at 15.38%, 11.01%, and 9.6%, better than the industry average of 9.2%. All these stocks have outperformed the industry in the past month.

Price Performance

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CenterPoint Energy Inc.: Houston, TX-based CenterPoint Energy is a domestic energy delivery company that provides electric transmission & distribution, natural gas distribution, and competitive natural gas sales and service operations. CenterPoint Energy is going to invest $18 billion in the 2021-2025 time period and $40 billion in the next few years to strengthen operations and provide high-quality services to customers. CenterPoint Energy has a goal of reaching net zero for both Scope 1 and Scope 2 emissions by 2035.

The long-term (three to five years) earnings growth rate of CNP is 4.64%. The Zacks Consensus Estimate for 2021 and 2022 earnings has moved up 0.7% and 1.5%, respectively, in the past 60 days.

Alliant Energy Corporation: Madison, WI-based, Alliant Energy is a holding company with subsidiaries engaged in regulated electric and natural gas services. Alliant Energy has plans to strengthen electric and natural gas distribution systems and invest $5.8 billion between 2022 and 2025. LNT announced the voluntary goal of retiring all the existing coal-fired generation units by 2040, with an objective of lowering emissions from 2005 levels by 50% and 100% within 2030 and 2050, respectively.

The long-term earnings growth rate of LNT is projected at 6.1%. The Zacks Consensus Estimate for 2021 earnings has moved up 1.9% in the past 60 days and that of 2022 has remained unchanged in the same time frame.

IDACORP Inc: Boise, ID-based IDACORP is a regulated utility engaged in the transmission, distribution, and sale of electricity services in southern Idaho and eastern Oregon through its primary subsidiary Idaho Power Company. IDACORP projects capital expenditure of $2 billion for the 2021-2025 time period. Owing to systematic investments in strengthening the clean generation portfolio, IDA expects to provide 100% clean energy to customers by 2045.

The long-term earnings growth of IDACORP is pegged at 4.44%. The Zacks Consensus Estimate for 2021 and 2022 earnings has moved up 0.4% and 1.01%, respectively, in the past 60 days.


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