The electric utility sector's outlook is strong due to a global push for clean energy and investments in solar and wind. This shift from fossil fuels is driven by government policies and lower costs, making the utility industry a promising area for growth and sustainable investment, leading the green revolution.
Therefore, buying strong utility stocks NextEra Energy, Inc. (NEE), The Southern Company (SO), and Duke Energy Corporation (DUK) could be wise.
Utilities offer crucial services like heat, water, and electricity, making them attractive to investors for stability during economic downturns. With global population growth and energy demands rising, the move to cleaner energy sources promises significant long-term growth for utility firms. The global utilities market is predicted to grow at a CAGR of 6.8%, reaching $8.31 trillion by 2027.
The electric utility industry is shifting towards decentralized energy resources (DERs), grid modernization, decarbonization, enhanced customer engagement, regulatory changes, cybersecurity, and the rise of prosumers. These trends suggest promising growth opportunities driven by technology integration and sustainability initiatives.
The Energy Information Administration (EIA) forecasts a 42% rise in solar and a 6% increase in wind power generation in the electric utility sector for the latter half of 2024 versus 2023. With electricity demand expected to increase by 2%, renewables are crucial to meeting this demand, indicating promising growth for the industry.
It is noteworthy, that the U.S. utility sector started strong in 2024, adding 5,585 MW of new capacity, up 28% from the previous year. This growth is driven by increased investments in renewables, regulatory changes, and rising electricity demand from big data and AI technologies, making utility stocks attractive right now.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Utilities – Domestic picks, starting with the third choice.
Stock #3: NextEra Energy, Inc. (NEE)
NEE and its subsidiaries generate, transmit, distribute, and sell electric power to retail and wholesale customers. The company generates electricity through wind, solar, nuclear, natural gas, and other clean energy sources.
On June 7, 2024, NEE and Entergy announced a joint agreement to develop up to 4.5 GW of new solar and energy storage projects. This partnership aims to meet growing demand with low-cost renewable energy across Arkansas, Louisiana, Mississippi, and Texas, enhancing Entergy's renewable generation portfolio.
In terms of the trailing-12-month gross profit margin, NEE’s 63.02% is 41.9% higher than the 44.42% industry average. Likewise, its 33.42% trailing-12-month EBIT margin is 56.4% higher than the industry average of 21.36%. Also, its 101.66% trailing-12-month Capex / Sales is 206.5% higher than the industry average of 33.17%.
For the fiscal first quarter that ended March 31, 2024, NEE’s operating revenues stood at $5.73 billion. The company’s adjusted earnings and adjusted EPS stood at $1.87 billion and $0.91, up 11.6% and 8.3% year-over-year, respectively. Additionally, as of March 31, 2024, NEE’s total assets stood at $179.95 billion, compared to $177.49 billion as of December 31, 2023.
Street expects NEE’s EPS for the quarter ended June 30, 2024, to increase 6.5% year-over-year to $0.94. Its revenue for the same quarter is expected to rise marginally year-over-year to $7.41 billion. NEE surpassed the Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 32.2% to close the last trading session at $71.90.
NEE’s POWR Ratings reflect strong prospects. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #20 out of 60 stocks in the Utilities – Domestic industry. It has a B grade for Sentiment. Click here to see NEE’s ratings for Growth, Value, Momentum, Stability, and Quality.
Stock #2: The Southern Company (SO)
SO and its subsidiaries engage in the generation, transmission, and distribution of electricity. The company also develops, constructs, acquires, owns, and manages power generation assets, including renewable energy projects, and sells electricity in the wholesale market. Additionally, it distributes natural gas in Illinois, Georgia, Virginia, and Tennessee.
On June 11, 2024, SO announced its official partnership with the UNDERRATED Golf Tour to support aspiring, underrepresented golfers. The tour aims to provide equity, access, and opportunities to student-athletes from diverse communities.
On May 1, 2024, SO announced the expansion of the Millers Branch Solar Facility in Texas by an additional 180 MW. This Phase II expansion will increase the total potential capacity of the facility to approximately 500 MW.
In terms of the trailing-12-month Return on Total Capital, SO’s 4.40% is 10.2% higher than the 3.99% industry average. Its 16.69% trailing-12-month net income margin is 33.5% higher than the 12.50% industry average. Furthermore, the stock’s 46.91% trailing-12-month EBITDA margin is 27.7% higher than the 36.73% industry average.
In the fiscal first quarter ended March 31, 2023, SO's total operating revenues rose 2.6% year-over-year to $6.65 billion, and its operating income stood at $1.70 billion, marking a 39.8% increase year-over-year. Moreover, the company’s net income – excluding special items and EPS – excluding special items grew 30.6% and 30.4% from the year-ago value to $1.13 billion and $1.03, respectively.
For the quarter that ended June 30, 2024, SO’s EPS and revenue are expected to increase 14.6% and 4.9% year-over-year to $0.91 and $6.03 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 20.2% to close the last trading session at $81.12.
SO’s bright prospects are reflected in its POWR Ratings. SO has a B grade for Growth and Sentiment. Within the same industry, it is ranked #13. To see SO’s ratings for Value, Momentum, Stability, and Quality, click here.
Stock #1: Duke Energy Corporation (DUK)
DUK and its subsidiaries operate as an energy company in the United States. It operates through two segments: Electric Utilities and Infrastructure (EU&I), and Gas Utilities and Infrastructure (GU&I).
On May 29, 2024, DUK announced agreements with Amazon, Google, Microsoft, and Nucor to accelerate clean energy options through innovative tariffs and risk-sharing for new carbon-free energy generation. This initiative supports DUK’s and its partners' commitment to clean energy in North Carolina and South Carolina.
In terms of the trailing-12-month EBIT margin, DUK’s 25.80% is 20.8% higher than the 21.36% industry average. Likewise, its 47.44% trailing-12-month EBITDA margin is 29.2% higher than the 36.73% industry average. Furthermore, the stock’s 43.68% trailing-12-month Capex / Sales is 31.7% higher than the 33.17% industry average.
DUK’s total operating revenues for the first quarter ended March 31, 2024, came in at $7.67 billion, up 5.4% year-over-year. Its operating income rose 17.3% over the prior-year quarter to $1.96 billion.
For the same quarter, the company’s adjusted net income available to DUK common stockholders increased 21.1% year-over-year to $1.10 billion. Also, its adjusted EPS came in at $1.44, representing an increase of 20% year-over-year.
Analysts expect DUK’s EPS for the quarter ended June 30, 2024, to increase 12.7% year-over-year to $1.03. Its revenue for the quarter ending September 30, 2024, is expected to increase 6.1% year-over-year to $8.48 billion. Over the past nine months, the stock has gained 19.1% to close the last trading session at $106.53.
DUK’s positive outlook is reflected in its POWR Ratings. It has an A grade for Growth. DUK is ranked #12 in the Utilities – Domestic industry. Click here to see DUK’s ratings for Value, Momentum, Stability, Sentiment, and Quality.
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NEE shares were trading at $70.95 per share on Wednesday afternoon, down $0.95 (-1.32%). Year-to-date, NEE has gained 18.64%, versus a 18.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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