On Wednesday, the Federal Reserve announced that it would raise interest rates for the first time in three years, thereby ending the accommodative monetary policy that has reigned during the global COVID-19 pandemic. The Fed has raised benchmark rates by 25 basis points. Interest rate hikes force consumers to cut back on their spending, which could lead to an economic slowdown. According to economists at Goldman Sachs Group Inc. (GS), the chances of the United States entering a recession over the next year has increased to 35%.
In addition, various factors, including Russia’s invasion of Ukraine, the pandemic, and climate-related events, have increased utility bills across the country. Americans might have to suffer high utility prices through the end of the year. The utility sector’s traditional defensive nature and steady revenues might make it perform relatively well during an economic slowdown.
Therefore, we think utility stocks Consolidated Edison, Inc. (ED), Centrais Elétricas Brasileiras S.A. – Eletrobrás (EBR), Brookfield Infrastructure Corporation (BIPC), and Otter Tail Corporation (OTTR) might be reasonable bets in the near term.
Consolidated Edison, Inc. (ED)
New York City’s ED operates in the electric, gas, and steam delivery businesses in the United States. The company offers electric services in New York City and Westchester County and gas in Manhattan, the Bronx, and parts of Queens.
On January 20, ED declared a 79 cents per share quarterly dividend on its common stock, which was payable to shareholders on March 15. This reflects upon the company’s ability to generate cash and its ability to pay back shareholders.
For its fiscal fourth quarter, ended Dec. 31, ED’s total operating revenues increased 15.4% year-over-year to $3.42 billion. Its adjusted net income for common stock and adjusted EPS rose 40.3% and 33.3%, respectively, from the prior-year quarter to $355 million and $1.00.
The $1.49 consensus EPS estimate for the quarter ending March 31, 2022, indicates a 3.5% year-over-year increase. And the 3.73 billion consensus revenue estimate for the same quarter reflects an improvement of 1.4% from the prior-year period.
The stock has gained 25.4% in price over the past year and 10.5% over the past month to close yesterday’s trading session at $90.01.
ED’s strong fundamentals are reflected in its POWR Ratings. The stock has a Growth and Momentum grade of B. In the 61-stock Utilities – Domestic industry, it is ranked #2. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Click here to see the additional POWR Ratings for ED (Value, Stability, Sentiment, and Quality).
Centrais Elétricas Brasileiras S.A. – Eletrobrás (EBR)
EBR, based in Rio de Janeiro, Brazil, generates, transmits, and distributes electricity in Brazil. The company generates electricity through hydroelectric, thermal, nuclear, wind, and solar power plants.
For its fiscal third quarter of 2021, EBR’s gross revenue increased 42.1% year-over-year to R$11.66 billion ($2.27 billion), while its net operating revenue rose 50.3% from the prior-year quarter to R$9.96 billion ($1.94 billion). Its EBITDA improved 4.2% from the same period in the prior year to R$5.60 billion ($1.09 billion).
The $6.67 billion consensus revenue estimate for its fiscal year 2021 reflects an 18.2% rise year-over-year. Furthermore, EBR has an impressive surprise earnings history, as it has topped consensus EPS estimates in three of the trailing four quarters.
Over the past year, EBR’s stock has gained 10.2% in price, and 10.5% year-to-date, to close yesterday’s trading session at $6.73.
It is no surprise that EBR has an overall B rating, which translates to Buy in our POWR Rating system. EBR has a B grade for Value, Momentum, and Quality. It is ranked #10 of the 56 stocks in the Utilities – Foreign industry. The industry is rated B. To see the additional POWR Ratings for Growth, Stability, and Sentiment for EBR, click here.
Brookfield Infrastructure Corporation (BIPC)
BIPC, which is headquartered in New York City, is the owner and operator of regulated natural gas transmission systems in Brazil. The company also operates in the United Kingdom’s regulated gas and electricity distribution operations and Australia’s electricity transmission and gas distribution operations.
On February 25, BIPC’s parent company, Brookfield Infrastructure Partners L.P. (BIP), announced that it intends to redeem all of its outstanding Cumulative Class A Preferred Limited Partnership Units, Series 7, for cash on March 31, 2022, with a CAD25.00 ($19.64) redemption price. The holders of the Series 7 preferred units are expected to receive a quarterly distribution of CAD0.3125 ($0.24552) per Series 7 Preferred Unit.
BIPC’s revenues have increased 10.4% year-over-year to $414 million in the fourth quarter, ended December 31. Its cash from operating activities rose 51.7% from the prior-year period to $220 million, while the company’s cash and cash equivalents balance came in at $469 million, up 144.3% from the same period the prior year.
BIPC’s shares have gained 18.2% in price over the past six months and 4.5% over the past month to close yesterday’s trading session at $70.05.
BIPC’s promising prospects are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
BIPC has a Momentum, Stability, and Quality grade of B. It is ranked #1 in the Utilities – Domestic industry.
Click here to see the additional POWR Ratings for Growth, Value, and Sentiment for BIPC.
Otter Tail Corporation (OTTR)
OTTR in Fergus Falls, Minn., operates in the electric utility, manufacturing, and plastic pipes businesses in the U.S. The company operates through the Electric; Manufacturing; and Plastics segments.
On February 4, OTTR announced a quarterly common stock dividend of $0.4125 per share, which brings its annualized dividend rate to $1.65 per share. The 5.8% increase in the dividend reflects the company’s commitment to shareholders and the company’s ability to deliver sustainable earnings and cash flows.
For the fiscal fourth quarter, ended December 31, OTTR’s total operating revenues increased 46.9% year-over-year to $333.23 million. Its net income and EPS rose 176.5% and 173.3%, respectively, from the same period last year to $51.62 million and $1.23.
The Street’s $1.15 EPS estimate for the quarter ending March 31, 2022indicates a 57.5% year-over-year improvement. And its $319.01 million revenue estimate for the same period reflects a rise of 21.9% from the prior-year quarter. In addition, OTTR has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 36.2% in price over the past year and 12.1% over the past six months to close yesterday’s trading session at $61.63.
Under the POWR Ratings, OTTR has a B grade for Growth, Stability, and Sentiment. It is ranked #4 in the Utilities – Domestic industry.
In addition to the POWR Rating grades we have stated above, one can see the additional POWR Ratings for Value, Momentum, and Quality here.
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ED shares were trading at $88.64 per share on Friday afternoon, down $1.37 (-1.52%). Year-to-date, ED has gained 4.89%, versus a -6.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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