US Utilities: How Are They Positioned for the Future?
US utilities delivered fairly decent earnings in 2Q17. They might continue to grow within their targeted 4%–6% growth range in the next few years. On the interest rate front, the Fed is aiming for another quarter point rate hike this year. However, there hasn’t been much weakness in utilities since the Fed started raising its benchmark interest rates a few years ago.
The Fed raised its benchmark interest rates for the first time post-crisis in December 2015. Since then, including dividends, the Utilities Select Sector SPDR (XLU) has returned 16% compounded annually, while broader markets have returned 9% during the same period. Interest rates and utilities generally move inversely to each other. During this period, higher rates seem to have stimulated utility stocks. It should be noted that utilities’ higher returns were a combination of an epic ascent of stocks and healthy dividend growth during this period.
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Utilities with rating changes last week
Credit Suisse raised its outlook on CenterPoint Energy (CNP) from “underperform” to “neutral” last week. It has a mean price target of $28.27. Currently, it’s trading at $29.01, which indicates an estimated downside of nearly 3% going forward.
Credit Suisse also raised NiSource’s (NI) outlook from “underperform” to “outperform” last week. It raised NiSource’s price target from $25.0 to $29.0. According to Wall Street analysts’ consensus, it has a mean price target of $26.90—compared to its current market price of $26.79.
Recently, California-based Edison International (EIX) was upgraded from “hold” to “buy” by Jefferies. Its price target increased from $85.0 to $90.0. It has a mean price target of $83.66—compared to its market price of $78.94. It has an estimated upside of 6% going forward.
To learn more, read Southern Company: Analyst Recommendations, Outlook, and More.
Read Which Utility Stock Is Best among the Top-Yielding SPX Utilities? for a comparative analysis of utilities with high dividend yields from XLU.