Due to the fact that services such as electricity are vital to human survival, utility companies are regarded as reliable investment options. However, the challenges of high inflation, rising interest rates, a slowing global economy, falling consumer spending, and weakening manufacturing will likely pressure the profitability of fundamentally weak foreign utility stocks.

Therefore, it could be wise to avoid fundamentally weak foreign utility stocks Emera Incorporated (EMRAF), Algonquin Power & Utilities Corp. (AQN), and Fusion Fuel Green PLC (HTOO).

Although the utility sector is considered a good choice for investors seeking a steady income stream, several risks are associated with the sector, like regulatory challenges, technological disruptions, slow growth, and capital intensity.

In addition, utility stocks are sensitive to interest rates. Rising interest rates make capital-intensive utility companies less attractive investment options for investors. More often than not, rising interest rates lead to high borrowing costs for them.

As central banks worldwide keep raising interest rates to keep inflation in check, the utility sector is expected to remain under pressure.

Keeping in mind these factors, avoiding fundamentally weak foreign utility stocks EMRAF, AQN, and HTOO could be wise.

Let’s discuss these stocks in detail.

Emera Incorporated (EMRAF)

Headquartered in Halifax, Canada, EMRAF is an energy and services company that engages in the generation, transmission, and distribution of electricity to various customers. The company operates through Florida Electric Utility, Canadian Electric Utilities, Other Electric Utilities, Gas Utilities and Infrastructure, and Other segments.

In terms of forward EV/EBITDA, EMRAF’s 12.20x is 8.5% higher than the 11.25x industry average. Likewise, its 4.89x forward EV/S is 24.1% higher than the 3.94x industry average.

EMRAF’s long-term liabilities for the fiscal year ended December 31, 2022, increased 9.4% year-over-year to $21.01 billion. Its net cash provided by operating activities declined 23% year-over-year to $913 million. In addition, its total operating expenses increased 23.2% year-over-year to $5.96 billion.

Analysts expect EMRAF’s revenue for fiscal 2023 to decline 2.1% year-over-year to $5.49 billion. Over the past year, the stock has declined 15.1% to close the last trading session at $43.14.

EMRAF’s weak prospects are reflected in its POWR Ratings. It has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Within the Utilities – Foreign industry, EMRAF is ranked #51 out of 55 stocks. It has a D grade for Growth and Quality. Click here to see the other ratings of EMRAF for Value, Momentum, Stability, and Sentiment.

Algonquin Power & Utilities Corp. (AQN)

Headquartered in Oakville, Canada, AQN is a renewable energy and utility company that provides energy and water solutions and services. The company operates through two segments, Regulated Services Group and Renewable Energy Group.

On April 18, 2023, CIBC Capital Markets downgraded AQN to Neutral from Outperform and slashed its 12-month price target to $10 from $17. CIBC analyst Mark Jarvi said, “We believe the decision to walk away from the Kentucky Power deal makes more sense given the more challenged financial position of Algonquin today. However, the path forward to a full recovery will not be easy.”

Jarvi believes that AQN’s stake in Atlantica Sustainable Infrastructure (AY) could be sold, and the asset sale to reduce debt could affect the company’s EPS outlook into 2025. “Investor confidence has been severely eroded and will take time and stronger execution to be restored. While we see more upside than downside at current levels, we cannot recommend Algonquin with any conviction at this time,” he added.

In terms of forward EV/Sales, AQN’s 5.35x is 35.8% higher than the 3.94x industry average. Its 23.12x forward EV/EBIT is 16.8% higher than the 19.80x industry average. Likewise, its 12.13x forward EV/EBITDA is 7.9% higher than the 11.25x industry average.

For the fiscal year ended December 31, 2022, AQN’s net loss attributable to shareholders came in at $212 million, compared to net earnings attributable to shareholders of $264.90 million in the year-ago period. Its adjusted earnings per common share came in at $0.69, representing a decline of 3% year-over-year. The company’s long-term debt widened 18.8% year-over-year to $423.27 million.

In addition, its operating expenses rose 21.3% year-over-year to $851.49 million. Also, its operating income declined 2.7% year-over-year.

Analysts expect AQN’s EPS and revenue for the quarter ended March 31, 2023, to decline 17.7% and 1.4% year-over-year to $0.17 and $725.60 million, respectively. Over the past year, the stock has declined 48.1% to close the last trading session at $8.06.

AQN’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to a Sell in our proprietary rating system.

It has a D grade for Value, Sentiment, and Quality. It is ranked last out in the same industry. To see the other ratings of AQN for Growth, Momentum, and Stability, click here.

Fusion Fuel Green PLC (HTOO)

Based in Dublin, Ireland, HTOO focuses on hydrogen production in Portugal, Southern Europe, and Morocco. The company intends to provide hydrogen generators to clients that operate their green hydrogen plants, green hydrogen as an output from green hydrogen plants, and operational and monitoring services of green hydrogen plants using fusion fuel hydrogen generators.

In terms of forward EV/Sales, HTOO’s 11.73x is 627.3% higher than the 1.61x industry average. Likewise, its 12.37x forward P/S is 839.7% higher than the 1.32x industry average.

HTOO’s operating loss for the fourth quarter ended December 31, 2022, widened 73.7% sequentially to €12.94 million ($14.18 million). Its pre-tax loss widened 212.6% sequentially to €11.13 million ($12.20 million). Also, its total liabilities rose 68% sequentially to €27.43 million ($30.06 million).

For the quarter ended March 31, 2023, HTOO’s EPS is expected to remain negative. Its revenue for the same quarter is expected to decline 82.3% year-over-year to $1.87 million. Over the past year, the stock has declined 70.4% to close the last trading session at $2.93.

HTOO’s POWR Ratings reflect this weak outlook. It has an overall rating of D, which translates to a Sell in our proprietary rating system.

It is ranked #54 in the Utilities – Foreign industry. It has a D grade for Stability, Sentiment, and Quality. Click here to see the additional ratings of HTOO for Growth, Value, and Momentum.

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EMRAF shares were trading at $42.90 per share on Wednesday morning, down $0.24 (-0.57%). Year-to-date, EMRAF has gained 11.40%, versus a 8.31% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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