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4 Stocks to Watch From a Prospering Electric Power Industry

The Zacks Utility – Electric Power industry players generate and supply electricity to millions of customers across the United States. The utilities have been transitioning toward clean sources of fuel and focusing on carbon emissions reduction. The support from the government is aiding the industry’s transition toward clean energy sources to produce electricity. Utilities are also focused on strengthening the grid as well as transmission and distribution infrastructure. The huge infrastructure of the utilities faces the impact of the hurricane season each year. Infrastructure enhancement around the year increases the resilience of the entire system, reduces outages and allows operators to restore power quickly to customers affected by storms.

PG&E Corporation PCG, with its expanding clean power generation portfolio and customer base, renewable operations, and well-chalked-out capital investments to strengthen infrastructure, offers an excellent opportunity to stay invested in the utility space. Other utilities worth adding to your portfolio are Public Service Enterprise Group PEG, Vistra Corporation VST and CenterPoint Energy Inc. CNP.


About the Industry

The Utility – Electric Power industry involves the generation, transmission, distribution, storage and sale of electricity to customers. A substantial portion of utilities’ earnings is generated from regulated operations. Unless there is any major weather variation, demand for the services provided by utilities remains steady, regardless of economic cycles. A very hot summer and cold winter season increases demand for electricity. A clear transition is evident in this industry, with more companies declaring zero-emission goals. The increasing usage of the Internet globally and an expected increase in artificial intelligence (AI) in the future will create a rise in demand for electricity. AI-based queries need substantially higher power than traditional Internet searches, music and photos. Yet, still-high interest rates are a headwind for capital-intensive utilities.

3 Electric Power Industry Trends in Focus

Transition Toward Cleaner Sources to Generate Power:  The operators in the U.S. electric power sector are gradually moving toward cleaner sources of energy. Per the U.S. Energy Information Administration (EIA), the annual share of U.S. electricity generation from renewable energy sources will rise from 21% in 2023 to 23% in 2024 and touch 25% in 2025 as a result of the continuing addition of solar and wind-generating capacity. The passage of the Inflation Reduction Act (IRA) should support and accelerate the utilities’ transition toward clean energy sources. It has removed the uncertainties relating to federal incentives provided for the use of renewable sources. The act entails an opportunity for a wide range of low-cost clean energy solutions in a predictable way for a long time and will create earnings visibility.

Demand and Price for Electricity: Per EIA, electricity supply volumes in the United States will increase 3.3% in 2024 from the 2023 level. A major portion of the electricity will be generated from clean energy sources. EIA predicts the price of electricity to U.S. residential customers in 2024 to average 16.06 cents per kWh, about 0.5% higher than the 2023 level. New rates implemented are likely to have raised the rates year over year. EIA expects retail electricity prices in the commercial sectors to increase in 2024. The increase in electricity prices in the near term should favor the utilities.

Still-high Interest Rate a Headwind: Utilities, in order to maintain, upgrade and expand operations, approach capital markets for loans as the funds generated from internal sources are not always sufficient. The utilities have been enjoying near-zero interest rates for the past few years. Multiple rate hikes by the Federal Reserve took the benchmark rate to the 5.25-5.50% range, which impacted utility operators. However, since the July 2023 increase, the Fed did not increase the benchmark rate. The current high interest rates will continue to adversely impact the utilities. Operators who are planning to invest large amounts in infrastructure upgrades and add renewable sources of energy to produce clean electricity will have to borrow funds at a higher rate, which will increase the overall cost of the long-term projects.

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Zacks Industry Rank Indicates Bright Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates upbeat near-term prospects. The 59-stock Utility-Electric Power industry is housed within the broader Zacks Utilities sector and currently carries a Zacks Industry Rank #92, which places it in the top 37% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate.

Before we present a few Utility - Electric Power stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and current valuation.

Industry Lags S&P 500 But Beats Sector

The Utility Electric Power industry has lagged the Zacks S&P 500 but outperformed its own sector over the past 12 months. The industry has declined 1.9% compared with its sector’s decrease of 2.7%. The Zacks S&P 500 composite has gained 16.5% in the same period.

Price Performance (One year)

Industry's Current Valuation

On the basis of EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) TTM, which is a commonly used multiple for valuing Utility Electric Power companies, the industry is trading at 13.84X compared with the S&P 500’s 14.03X and the Utility sector’s 14.96X.

Over the past five years, the industry has traded as high as 21.47X, as low as 11.07X and at the median of 15.3X.

Industry EV/EBITDA TTM  vs S&P 500 (5yrs)

Industry EV/EBITDA TTM  vs Sector (5yrs)



4 Electric Power Industry Stocks to Watch

Utilities is a mature sector, and all the stocks selected from the Zacks Utility Electric Power industry have a market capitalization of more than $19 billion. One stock currently sports a Zacks Rank #1 (Strong Buy), while the other three have a Zacks Rank #2 (Buy) each.   You can see the complete list of today’s Zacks #1 Rank stocks here.

Vistra Corp.:  Irving, TX-based Vistra, together with its subsidiaries, operates as an integrated retail electricity and power generation company. The company’s systematic capital investment plans and expanding customer base should further drive its performance. It expects to invest nearly $1.94 billion and $1.75 billion in 2024 and 2025, respectively. The company pays dividend and executes share repurchases to increase its shareholders’ value. The Zacks Consensus Estimate for Vistra’s 2024 earnings per share reflects a year-over-year growth of 5.9%. Vistra Corp. sports a Zacks Rank #1.

Price and Consensus: VST

PG&E Corporation: San Francisco, CA-based PG&E Corporation generates revenues mainly through the sale and delivery of electricity and natural gas to its customers. The company has a capital expenditure plan of $62 billion for the 2024-2028 period to strengthen its infrastructure. The company will benefit from the rising demand for electricity from data centers. The Zacks Consensus Estimate for PG&E Corporation’s 2024 earnings per share reflects year-over-year growth of 9.8%. The company currently has a Zacks Rank #2.

Price and Consensus: PCG

Public Service Enterprise Group Inc. Newark, NJ-based Public Service Enterprise Group Inc. is a diversified energy company which consists primarily of a regulated electric and gas utility and a nuclear generation business. For the 2024-2028 period, the company currently expects to invest $18 to $21 billion in system modernization as well as to meet New Jersey’s decarbonization and energy policy goals. PEG’s long-term (three to five years) earnings growth is pegged at 6.55%. The current dividend yield for PEG is 3.27%, which is better than the Zacks S&P 500 composite’s yield of 1.59%. The Zacks Consensus Estimate for Public Service Enterprise’s 2024 earnings per share has risen 5.5% year over year. PEG currently has a Zacks Rank #2.

Price and Consensus: PEG

CenterPoint Energy: Houston, TX-based CenterPoint Energy provides electric transmission & distribution, natural gas distribution and competitive natural gas sales and services operations. CenterPoint Energy is investing to expand its operations to meet increasing electricity demand, backed by expanding commercial activity.  A major portion of the planned investment will be utilized to strengthen its electric operation. CNP’s current dividend yield is 2.6%. The Zacks Consensus Estimate for CenterPoint Energy’s 2024 earnings per share reflects year-over-year growth of 8%.CNP’s long-term earnings growth is pegged at 7%. CenterPoint Energy currently has a Zacks Rank #2.

Price and Consensus: CNP


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Pacific Gas & Electric Co. (PCG) : Free Stock Analysis Report

Public Service Enterprise Group Incorporated (PEG) : Free Stock Analysis Report

CenterPoint Energy, Inc. (CNP) : Free Stock Analysis Report

Vistra Corp. (VST) : Free Stock Analysis Report

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