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The Zacks Analyst Blog Highlights: American Electric, American Water, NextEra, FirstEnergy and Duke

Zacks Equity Research
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For Immediate Release

Chicago, IL –March 20, 2019 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: American Electric Power Company, Inc. AEP, American Water Works Company, Inc. AWK, NextEra Energy, Inc. NEE, FirstEnergy Corp. FE and Duke Energy Corporation DUK.

Here are highlights from Tuesday’s Analyst Blog:

5 Standout Utility Stocks for a Durable Portfolio

Upbeat economic growth coupled with a healthy labor market is expected to lift prices of goods and services in the United States. And the Fed is expected to tackle inflation by hiking interest rates. This will invariably lead to an uptick in fixed income yields. Utility stocks, in the meanwhile, better known as bond substitutes, are likely to take a hit. However, this isn’t the scenario as utility stocks have retained their glory.

After all, inflation has remained relatively contained. U.S. consumer prices increased marginally last month, supporting the case for the Fed to hold off further hiking rates in the near future. The consumer price index increased 1.5% from year-ago levels, while core inflation that excludes volatile items like food and energy costs, rose 2.1%. The Fed stated that the central bank will stick to its patient stance on monetary policy as long as core inflation continues to be near 2%.

In fact, analysts polled by International Business Times see no rate hike in Fed’s March meeting. The Fed is expected to leave interest rates unchanged at 2.25-2.50% at its upcoming policy meeting. It’s also worth mentioning that the Fed kept rates unchanged at its Jan 29-30 meeting.

Moreover, utility companies being capital-intensive have high levels of debt. Hence, a low interest rate environment will help such businesses clear debt and book profits. Conversely, higher interest rates along with increased debt, for that matter a steep debt/equity ratio, will impact the credit ratings of these utility operators. If credit ratings go down, a company will find it difficult to borrow funds from the markets at reasonable rates, leading to increased cost of operations.

Coming back to inflation, it shouldn’t rise anytime soon as technology giants continue to suppress inflationary pressure. Just look at how Amazon.com is building pressure on all consumer products. So, with inflation remaining subdued, utility stocks have huge room to rally. Here’s a list of five of them that are worth a look —

American Electric Power

American Electric Power Company, Inc. engages in the generation, transmission, and distribution of electricity for sale to retail and wholesale customers in the United States. This electric public utility holding company is considered one of the industry heavyweights and delivers electricity to more than 5 million customers across 11 states.

American Electric Power currently has a Zacks Rank #2 (Buy) and its overall sales and earnings are climbing at an encouraging pace. In the past 60 days, the company has seen two earnings estimates move north, while one moved south for the current year. The Zacks Consensus Estimate for earnings rose 0.5% in the same period. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company’s expected earnings growth rate for the current year is 4.6%, in contrast to the Utility - Electric Power industry’s projected decline of 3.4%. The company has outperformed the broader industry so far this year (+11.7% vs +11.3%).

American Water Works

We all know that electricity and power are important utilities, but, water is equally important, and that is where the largest publicly traded water company American Water Works Company, Inc. comes into the frame. It serves 15 million people in 46 states and also Canada. American Water Works, by the way, is investing heavily in modernizing water distribution facilities that will surely boost long-term earnings growth.

American Water Works currently has a Zacks Rank #2. In the past 60 days, American Water Works has seen four earnings estimates move north, while one moved south for the current year. The Zacks Consensus Estimate for earnings rose 1.4% in the same period.

The company’s expected earnings growth rate for the current year is 8.5%, higher than the Utility - Water Supply industry’s projected gain of 0.2%. The company has outperformed the broader industry in the past month (+6.6% vs +5.3%).

NextEra Energy

NextEra Energy, Inc. generates, transmits, distributes, and sells electric power to retail and wholesale customers in North America. The company has huge long-term potential not only because of its massive utility business but also because it is a leading renewable energy and battery storage player. For the last 10 years, this company has successfully increased its earnings at an 8%-per-year clip.

NextEra Energy currently has a Zacks Rank #2. In the past 60 days, the company has seen four earnings estimates move up, while one moved down for the current year. The Zacks Consensus Estimate for earnings rose 0.4% in the same period.

The company’s expected earnings growth rate for the current year is 9.1%, in contrast to the Utility - Electric Power industry’s projected decline of 3.4%. The company has outperformed the broader industry in the past year (+19.0% vs +15.8%).

FirstEnergy

FirstEnergy Corp. generates, transmits, and distributes electricity in the United States. It may not be as big as the other utility companies in the list, but, it does serve 6 million customers in Ohio, Pennsylvania, West Virginia, Maryland, New Jersey and New York. It also has a significant market cap of more than $20 billion. Thus, it remains a solid income investment.

FirstEnergy currently has a Zacks Rank #2. In the past 60 days, FirstEnergy has seen one earnings estimate move north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 0.4% in the same period.

While FirstEnergy flaunts a Momentum Score of A, it has already outperformed the broader Utility - Electric Power industry in the past year (+22.2% vs +15.8%).

Duke Energy

Duke Energy Corporation operates as an energy company in the United States through three segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure, and Commercial Renewables. Its revenues and earnings are improving on a favorable economic backdrop. At the same time, its initiative to expand liquid natural gas (LNG) business will surely help sustain steady long-term growth.

Duke Energy currently has a Zacks Rank #3 (Hold). In the past 60 days, the company has seen four earnings estimates move up, while one moved down for the current year. The Zacks Consensus Estimate for earnings rose 0.2% in the same period.

The company’s expected earnings growth rate for the current year is 5.3%, in contrast to the Utility - Electric Power industry’s estimated decline of 3.4%. The company has outperformed the broader industry in the past year (+17.9% vs +15.8%).

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

See Latest Stocks Today >>

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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American Electric Power Company, Inc. (AEP) : Free Stock Analysis Report
 
FirstEnergy Corporation (FE) : Free Stock Analysis Report
 
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NextEra Energy, Inc. (NEE) : Free Stock Analysis Report
 
American Water Works Company, Inc. (AWK) : Free Stock Analysis Report
 
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