For Immediate Release
Chicago, IL – September 21, 2015 – 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 includeEdison International (EIX), Atmos Energy Corp. (ATO), Consolidated Edison, Inc. (ED) and Unitil Corp. (UTL).
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Here are highlights from Friday’s Analyst Blog:
4 Utility Stocks to Buy on ‘No Rate Hike’ Decision
The announcement from Fed Chair Janet Yellen that interest rates will not be raised in the near term from its current near-zero level has finally pulled back the curtain on ongoing speculation in the financial markets.
Market pundits had mixed opinions about the rate hike. While some advocated an immediate rate increase, pointing out that the U.S. economy is prepared for an uplift, others were against it saying an increase will slow down the rate of overall economic growth.
The decision to not increase the rates by the Fed stems from the concept of the “global village” economy. The Fed chair cited weak global economy as the primary reason for not increasing the rates. The steady decline in the U.S. unemployment rate and a marked increase in domestic spending were actually paving the way for a Fed rate hike.
But the recent weakness in the Chinese economy has disrupted the balance of the global markets, with all major indexes taking a beating. The loss of momentum in the Euro zone economy welled up global woes.
Will the Fed Lift Rates in the Near Future?
A rate hike, in this context, would have added to the turmoil in the global markets. The U.S. investors would have been tempted to withdraw funds from the choppy foreign markets and invest in domestic funds. This could have further weakened the global economy and lowered U.S. exports, which are as it is hurt by a stronger dollar against a basket of other currencies.
However, the Fed might rethink its monetary policy when they meet again in October and December this year. A hike will be imminent if labor-market conditions show “further improvement” and the economy achieves the targeted inflation rate. The global markets will also have a few more months to strengthen themselves.
Capital Intensive Industries to Benefit
The capital intensive industries will definitely welcome the no-hike decision as they need to take recourse to the markets fairly constantly. In particular, the mature capital intensive U.S. based utilities have hitherto benefited from zero-level interest rates and the volatility in the markets that drove investors to the utility corner. A rate hike would have definitely brought an end to all that.
The U.S. electric utilities are also currently under intense pressure to meet regulatory requirements pertaining to environmental standards. The finalized version of the Clean Power Plan, per the U.S. Environmental Protection Agency, calls for CO2 reduction of 28% by 2025 and 32% by 2030, from 2005 levels.
They are presently shutting down old polluting coal plants and investing in carbon capture technology while expanding renewable assets and building combined cycle natural gas plants. All of these require huge capital layout for which they need to borrow money from the markets. Low rates would definitely help.
Again, these regular dividend payers are often regarded as a “bond substitute.” So long rates remain the same utilities will continue to have an advantage over low-yielding Treasury bonds.
As the Fed said no change to rates, U.S. stocks closed lower on Thursday. While six of the 10 S&P 500 sectors ended in the red, led by telecom and financial stocks, utilities were the largest gainer, edging up 1.3%.
How to Select the Right Utilities?
Selecting the best stocks from the electric utility space may appear to be a daunting task. This is where we fall back on our proprietary methodology. It’s fairly simple. Stocks with the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy) or #2 (Buy) – and positive earnings surprises for the last four quarters should do the trick.
Here are four utility stocks that are currently equipped with the above combination, promising assured returns to their investors.
Edison International (EIX), based in Rosemead, CA, together with its subsidiaries, generates and supplies electricity.
This Zacks Rank #2 (Buy) stock has a long-term earnings growth projection of 4.7% and a dividend yield of 2.8%. The utility has registered positive earnings surprises in the last four quarters with an average beat of 23.7%. The company gained 2.33% to close at $61.10 yesterday.
Atmos Energy Corp. (ATO), based in Dallas, TX, together with its subsidiaries, engages in the distribution, transmission and storage of natural gas in the U.S.
This Zacks Rank #2 (Buy) stock has a long-term earnings growth projection of 7% and a dividend yield of 2.8%. Atmos Energy also has an unblemished record with a trailing four-quarter average beat of 11.2%. The company gained 0.87% to close at $55.75 yesterday.
Consolidated Edison, Inc. (ED), based in New York, together with its subsidiaries, engages in regulated electric, gas and steam delivery businesses.
This Zacks Rank #2 (Buy) stock has a long-term earnings growth projection of 2.7% and a dividend yield of 4.09%. Consolidated Edison has registered positive earnings surprises in the last four quarters with an average beat of 7.9%. The company gained 1.51% to close at $64.51 yesterday.
Unitil Corp. (UTL), based in Hampton, NH, engages in the distribution of electricity and natural gas in the U.S.
This Zacks Rank #2 (Buy) stock has a dividend yield of 4%. The company has beaten earnings estimates in each of the last four quarters at an average of 13.1%. The company gained 1.77% to close at $35.64 yesterday.
Bottom Line
Despite operating under the constant glare of regulatory authorities, utilities offer investors a safe investment option. The defensive nature of their operations is further reinforced by their dividend-paying abilities, which make utilities a safe-haven investment for income-seeking investors.
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EDISON INTL (EIX): Free Stock Analysis Report
ATMOS ENERGY CP (ATO): Free Stock Analysis Report
CONSOL EDISON (ED): Free Stock Analysis Report
UNITIL CORP (UTL): Free Stock Analysis Report
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