What’s next for utilities?
Utility stocks remained strong even after the Fed delivered a rate hike last month—the second rate hike in 2018. The stocks rose nearly 10%, notably outperforming the broader markets. The FOMC (Federal Open Market Committee) released its minutes from the June meeting on July 5. The minutes suggested that the Fed might continue to raise rates on a regular basis, even amid increasing trade war concerns. The utility sector is susceptible to interest rate hikes. Rising rates result in higher debt servicing costs for utilities, which dent their profitability.
In this series, we’ll look at analysts’ favorite utility stocks from the S&P 500 Utilities Index (XLU) based on their “buy” ratings. Let’s see which of these utility stocks (IDU) might delight investors going forward.
The chart above shows five utility stocks with the most “buy” ratings among their peers. The largest merchant power producer, NRG Energy (NRG), has the most “buy” ratings as of July 12. About 88% of analysts tracking NRG have rated the stock a “buy.” Compared to its peers, NRG Energy has the highest implied gain of 25% for the next 12 months based on analysts’ mean price target.
The top five utilities operate in different states and differ significantly in size. NRG Energy, one of the smallest components of the S&P 500 Utilities Index, has a market capitalization of $9.6 billion. The largest, NextEra Energy (NEE), has a market capitalization of $78 billion.