The top utility stocks continued to their strong trading trend last week. The biggest four by market cap—NextEra Energy (NEE), Duke Energy (DUK), Southern Company (SO), and Dominion Energy (D)—touched new 52-week highs on Friday.
These defensives have remained in focus throughout this year amid increased broader market volatility. Let’s see how analysts currently look at these stocks and where they could go from here.
The Utilities Select Sector SPDR ETF (XLU), the representative of top utilities in the country, is up more than 20% year-to-date (or YTD). In comparison, the broad market index S&P 500 is up almost 19% in the same period.
Based on analyst estimates, NextEra Energy stock has a mean price target of $223.80 against its current market price of $225.70. This implies an estimated downside of approximately 1% for the next 12 months.
NextEra Energy stock has rallied about 30% so far this year. It is the biggest utility by market cap and is valued at $110.3 billion. NextEra Energy’s superior earnings growth in the last few years has influenced its market performance. For more, please read NextEra Energy’s Earnings: Solid Growth in Q2.
Among the 16 analysts tracking NextEra Energy, nine analysts recommended the stock as a “buy” while five recommended a “strong buy.” Two analysts recommended a “hold,” and there were no “sell” recommendations on September 23.
Notably, NextEra Energy offers the lowest dividend yield of 2.4%. Its yield has always been lower than its peers’ average.
The Utilities Select Sector SPDR ETF (XLU) is currently trading at a dividend yield of 3%. The four utilities discussed in this story collectively form more than 35% of XLU.
Duke Energy stock also offers flattish movement based on analysts’ mean price target of $94.90, and it closed at $95.30 last week. Wall Street analysts look mostly cautious on Duke Energy stock. The stock is up only 10% YTD and has significantly underperformed its peers.
Twelve of the 18 analysts recommend the stock as a “hold.” Three analysts recommend a “buy,” one recommends a “strong buy,” and two recommend a “sell.” Duke Energy stock offers a yield of 4%.
None of the top utility stocks seem to offer a handsome gain based on analysts’ estimates at this time. However, utilities could remain investors’ preferred safe haven destination due to their stable dividends. They have little or no correlation with the economic cycles. Also, utilities are expected to grow at a reasonable pace, even in the event of a global economic slowdown and trade tensions.
Along with a fair yield, these defensives offer a reasonable dividend growth as well. So, dividend-seeking investors are expected to take shelter under utilities as recession fears loom. Utilities, generally known as bond proxies, trade inversely to interest rates. If interest rates continue to fall, utilities could look even more attractive.
Wall Street analysts have given Southern Company stock a mean price target of $57.80, which implies a downside of more than 5% for the next 12 months. SO stock closed at $61.10 last week.
Southern Company stock is among the top-gaining utilities this year and has risen more than 40% YTD. To learn more about Southern Company’s performance this year, please read Factors That Could Aid or Spoil Southern Company’s Rally.
Of the 19 analysts covering Southern Company, 12 recommended it as a “hold” on September 23. Four analysts recommended it as a “sell,” one recommended a “strong sell,” and two recommended a “buy.” Evercore ISI increased Southern Company’s price target from $53.50 to $55.25 last week.
Southern Company’s yield of 4.1% looks generous compared to utilities at large. For more information, please read Finding the Top Dividend Stock among Utilities.
Of the 18 analysts covering Dominion Energy, 12 recommended it as a “hold,” three analysts recommended it as a “strong buy,” and three recommended it as a “buy.” There were no “sell” recommendations.
Dominion Energy stock is currently trading at $80.80 and offers a slim gain of just 1% for the next year. Analysts gave it a mean target price of $81.40. Dominion Energy stock is up 13% so far this year, lagging its peers.
Moving forward, utilities’ valuations could significantly hinder their upward trend. To learn more about these valuations and where they might go, please read Why Utility Stocks’ Upside Looks Capped from Here.