Top 3 stock bets in the utilities sector

1:50 am ET, 22 Apr 2019

Disclaimer: The following bite is my perspective on utilities investing; it is not an endorsement or a recommendation for investors to buy, sell or short any stock.  

On average, the US utilities entered 2019 at a fair trading value. There has been a 9% year-to-date rally.  In the upcoming 3 to 5 years, utility dividends are likely to grow beyond 5% annually.  There are chances that some of the utility dividends will exceed 10%. 

Excluding some special cases, the chances of dividend cuts in this sector are pretty slim.  Utilities favor investors who want stable and increasing cash flows.  If a modest stock price correction occurs, look for a good buying opportunity.

Here are our top 3 stock bets in the utility sector.  Please don't construe the following as stock recommendation, but rather an insight and a starting point for further investigation, before making an investment.

1. Dominion Energy (D)

Dominion Resources (D) has invested largely in infrastructure projects, divested non-core businesses and made a strategy pivot.  By 2023, its core businesses, the $4 billion Cove Point liquefied natural gas export facility and the $8 billion Atlantic Coast Pipeline project are likely to generate half of its total earnings. 

Dominion could produce double-digit annual returns in the upcoming period despite a slow dividend growth.

Over the last month, Dominion Resources (D) returned +0.14%. 

Dominion Resources (D) average analyst price target is 3.4% above its current price ($74.92).

For the latest information and analysis of Dominion Resources, Inc., please visit Finstead and ask for "D" or "D analysis".


2.  Edison International (EIX)

Edison International (EIX) is our second pick.  The California wildfires that have scared off potential investors, creating a very good buying opportunity for Edison International.  For the next five years, we expect a 6% annual earnings and dividend growth. 

The growth in earnings could become lumpy because of regulatory delays and policy shifts.  Nevertheless, we should see a steady dividend growth.

Over the last month, Edison International (EIX) returned +5.58%. 

Edison International (EIX) forward P/E ratio is 13.39, and it’s low compared to its industry peers’ P/E ratio.Edison International (EIX) average analyst price target is 9.46% above its current price ($63.09).

For the latest price and information on Edison International, please visit Finstead and ask for "EIX" or "EIX analysis".

3. Engie (ENGQF)

Engie S.A. (ENGQF) has very good fundamentals and a lower leverage relative to its peers. 

The sale of the French state’s stake in Engie’s capital, as well as the partial exit of the French gas transmission assets, are likely to act as catalysts for its business growth.  In the upcoming period, an 8% annual EPS growth and a 6% dividend growth can be expected, because of the company's investments in the renewable energy sector, increasing power prices and cost cutting.

Over the last month, Engie (ENGQF) returned +0.68%. 

Engie (ENGQF) average analyst price target ($15.81) is 6.82% above its current price ($14.80).

For the latest price and information on Engie, please visit Finstead and ask for "ENGQF", "ENGQF analysis" or "ENGQF news".

Dominion Resources, Inc. (D) Stock Guide

Updated at: 11:07 pm ET, 16 Sep 2020

Before we start: if you're looking for D stock price, you can quickly find it out by visiting Finny and typing "D quote". If you're looking for a quick scoop on D stock (chart, price target, market cap, news and buy or sell analysis), go to Finny and look for "D". You'll get all this info in one place. Or you can just type "D news" to get the latest stock news.

Looking to buy or sell Dominion Resources, Inc. (D)? Interested in getting the full scoop on D, including earnings and dividends, stock forecast, buy or sell analysis and key stats? If so, you came to the right place.

In this D stock guide, we'll address key questions about D, above and beyond what you can find on Yahoo Finance, Zacks, MarketWatch or Morningstar.

Here is what you'll be able to find in this guide:

Earnings and Dividends: earnings, earnings date, dividend rate and dividend yield;
Analyst Predictions: stock forecast and analyst ratings;
Analysis: Finny Score and buy or sell analysis;
Key Stats: revenue, market cap, revenue growth, profit margin, P/E ratio, P/B ratio, industry, sector, and number of employees.

And here is the list of questions we'll answer:
1. What are D earnings?
2. What is D dividend?
3. What is D dividend yield?
4. What is D stock forecast (i.e., prediction)?
5. D buy or sell? What is D Finny Score?
6. What are the reasons to buy D? Why should I buy D stock?
7. What are the reasons to sell D? Why should I sell D stock?
8. What are D key stats: revenue, market cap, revenue growth, profit margin, P/E ratio, P/B ratio industry, sector, and number of employees?

So let's start. Scroll down to the question that interests you the most.

Earnings and Dividends

1. What are D earnings?

D trailing 12-month earnings per share (EPS) is $0.56.

2. What is D dividend?

D forward dividend is $3.76.

3. What is D dividend yield?

D forward dividend yield is 4.79%.

Analyst Predictions

4. What is D stock forecast (i.e., prediction)?

Based on D analyst price targets, D stock forecast is $81.62 (for a year from now). That means the average analyst price target for D stock is $81.62. The prediction is based on 18 analyst estimates.

The low price target for D is $68.00, while the high price target is $91.00.

D analyst rating is Hold.

Analysis

5. D buy or sell? What is D Finny Score?

#{finnyScore:17}Our quantitative analysis shows 1 reason to buy and 5 reasons to sell D, resulting in Finny Score of 17.

6. What are the reasons to buy D? Why should I buy D stock?

Here are the reasons to buy D stock:

  • Recent Virginia legislation freezes base rates until 2022, a positive with strong customer growth of almost 2% per year.
  • The majority of regulated utility growth investments in Virginia enjoy rate rider treatment, significantly reducing regulatory lag and providing equity returns near 11%, well above the national average.
  • We think Dominion can maintain its 70%-75% dividend payout target. Based on this payout ratio and the extension of bonus depreciation, we expect annual dividend increases to average over 8% during the next five years.
  • D forward dividend yield is 4.79%, higher than the industry (1.86%) and sector (1.36%) forward dividend yields. See D forward dividend chart.

7. What are the reasons to sell D? Why should I sell D stock?

Let's look at the reasons to sell D stock (i.e., the bear case):

  • Sequestration reduced electricity demand growth in northern Virginia and Washington, D.C. A smaller government could be a headwind for future earnings growth.
  • Now that Virginia has reached its goal for domestic energy production, regulators have cut incentive returns on new generation investment from above-average levels.
  • Low natural gas prices continue to pressure merchant generation earnings at the Millstone nuclear power plant.
  • D quarterly revenue growth was -9.70%, lower than the industry and sector average revenue growth (0.62% and 0.75%, respectively). See D revenue growth chart.
  • D profitability is declining. The YoY profit margin change was -5.52 percentage points. See D profitability chart.
  • D PEG ratio (P/E adjusted for growth) is 8.00, which is high compared to its industry peers’ PEG ratios. See D PEG chart.
  • D short interest (days to cover the shorts) ratio is 2.94. The stock garners more short interest than the average industry, sector or S&P 500 stock. See D short interest ratio chart.
  • D cash to debt ratio is 0.02, lower than the average industry (0.06) and sector (0.05) cash to debt ratio. See D cash to debt chart.

Key Stats

8. What are D key stats : revenue, market cap, revenue growth, profit margin, P/E ratio, P/B ratio industry, sector, and number of employees?

Let's look at the key statistics for D:

Metrics D
Price $76.21
Average Price Target / Upside $81.62 / 7.10%
Average Analyst Rating Hold
Forward Dividend Yield 4.79%
Industry Utilities - Diversified
Sector Utilities
Number of Employees 21,300
Market Cap $65.9B
Forward P/E Ratio 20.16
Price/Book Ratio 3.92
Revenue (TTM) $16.82B
YoY Quarterly Revenue Growth -9.70%
Profit Margin 3.24%

If you liked this analysis, check out Stock Guides for other stocks.

Follow Us