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LNT or IDA: Which Utility Stock Should You Add in 2022?

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The pandemic’s impact is gradually on the decline, with an increase in the fully vaccinated population and enhanced medical knowledge. Despite risks from the new variant, the reopening of economic activities across the globe has brought back demand, and more electricity is being consumed by the Commercial and Industrial group. The stocks from the Zacks Utility – Electric Power industry are gaining from the increase in demand.

The U.S. Energy Information Administration (“EIA”) forecasts that after a decline of 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.

Stable demand from the residential group is also aiding domestic-focused capital-intensive utilities. Even though the share price of utility stocks does not fluctuate much, its ability to distribute regular dividend to shareholders makes them special for risk-averse investors.

The Zacks Utilities sector registered earnings growth for the first three quarters of 2021. Our weekly Earnings Trends report indicates 5% growth in 2021 earnings, backed by 11.7% growth in revenues. This positive trend is expected to continue in 2022, with an overall earnings growth of 5.8%, backed by 2.2% revenue growth.

Utilities are not only focusing on improving their infrastructure but also investing in clean and sustainable energy. Many utilities have pledged to become emission-less companies by 2050. Amid improving demand, we run a comparative analysis of two major electric power utilities, namely Alliant Energy LNT and IDACORP Inc. IDA, to determine which stock is better poised right now.

Both the stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Estimate Movement

The Zacks Consensus Estimate for 2021 earnings per share of Alliant Energy and IDACORP has moved 1.9% and 0.4% north to $2.64 and $4.87, respectively, in the past 60 days.

While the Zacks Consensus Estimate for IDACORP’s 2022 earnings per share has moved 1% north to $5, the same for Alliant Energy has been unchanged at $2.75 in the past 60 days.

Earnings Surprise Trend & Long-Term Growth

Alliant Energy delivered a trailing four-quarter surprise of 4.41%, on average. Its long-term (three to five years) earnings growth is projected at 6.1%.

IDACORP delivered a trailing four-quarter surprise of 5.18%, on average. Its long-term earnings growth rate is pegged at 4.44%.

Return on Equity (ROE)

ROE measures a company’s efficiency in utilizing shareholders’ funds. Alliant Energy and IDACORP have a trailing 12-month ROE of 11.01% and 9.6%, respectively. The industry’s ROE for the same period came in at 9.26%.

Debt to Capital

The long-term debt-to-capital ratio is a good indicator of a company’s financial position and shows how much debt is used to run its business. Alliant Energy has a long-term debt to capital of 51.97%, higher than IDACORP’s 42.77%. The utility electric power industry’s average long-term debt to capital is 52.33%.

The times interest earned (TIE) ratio of Alliant Energy at the end of third-quarter 2021 was 3.1. IDACORP’s TIE at the end of third-quarter 2021 was 3.9. A greater than one TIE ratio reflects the companies’ financial strength and ability to meet debt obligations.

Dividend Yield

Alliant Energy has a dividend yield of 2.73%, while IDACORP has 2.75%. The utility electric power industry’s average dividend yield is 3.3%.

Price Movement

In the past six months, shares of Alliant Energy have gained 0.5% while that of IDACORP has rallied 8.2%. The industry has recorded 1.7% growth in the said period.

Price Performance (Six months)

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Capital Investment Plans

Between 2022 and 2025, Alliant Energy aims to invest $1.06 billion to further expand and strengthen renewable operations.

IDACORP aims to invest $2 billion in the 2021-2025 time period to further expand and strengthen its infrastructure and add more renewable assets to the generation portfolio.

Result

Both the utilities seem to be a promising choice for the upcoming year. Also, their capital budgets are reserved for more clean renewable sources, thereby strengthening and expanding their infrastructure to increase the reliability of their services as well as lowering emissions. Given the rising estimates, lower debt level and a solid capital investment plan, IDACORP looks better positioned for the upcoming period even though its ROE is lower than Alliant Energy.


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