The utilities sector faces uncertainty regarding the potential clean-energy legislative funding and higher interest rates due to an unprecedented rise in inflation. Furthermore, gas utility companies experienced an earnings slump year-over-year in the third quarter.

Earlier this year, the power of social media in stock market trading was tested when the discourse on the Reddit forum, r/WallStreetBets, drove selected stocks to a short-squeeze situation. However, the shares’ price gains could not be sustained because of their companies’ weak fundamentals. In addition, a capital.com study has found that investing in stocks mentioned on the platform resulted in losses half the time, and the losses worsened over time as investors held on to foundering stocks.

Therefore, we think utility stocks mentioned frequently on the WallStreetBets forum over the past 24 hours, Eversource Energy (ES) and Archaea Energy Inc. (LFG), might be best avoided, given their weak fundamentals.

Eversource Energy (ES)

ES operates as an energy delivery business, functioning through Electric Distribution; Electric Transmission; Natural Gas Distribution; and Water Distribution segments. The Springfield, Mass.-based company transmits and distributes electricity, natural gas, and solar power.

For its fiscal third quarter, ended September 30, ES’ operating income decreased 13.9% year-over-year to $483.33 million. Its net income attributable to common shareholders and its EPS came in at $283.17 million and $0.82, respectively, down 18.2% and 18.8% from the same period last year.

A $0.93 consensus EPS estimate for the current quarter (ending December 2021) indicates a 9.4% year-over-year increase. However, the $2.21 billion consensus revenue estimate for the current quarter reflects a decrease of 0.9% from the prior-year quarter. Also, ES has missed consensus EPS estimates in three of the trailing four quarters.

The stock has declined 2.1% in price over the past five days and 0.8% intra-day to close yesterday’s trading session at $88.96.

This bleak outlook is reflected in ES’ POWR Ratings. The stock has an overall D grade, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

ES has a Value and Sentiment grade of D. In the 58-stock Utilities – Domestic industry, it is ranked #51. The industry is rated F. Click here to see the additional POWR ratings for ES (Growth, Momentum, Stability, and Quality).

Archaea Energy Inc. (LFG)

LFG is a renewable energy gas (RNG) producer operating in the United States. The Canonsburg, Pa.-based company develops, constructs, and operates RNG facilities for capturing waste emissions and their conversion into low carbon fuel. The company, formerly named Rice Acquisition Corp., went public on September 16, 2021, after a business combination with Aria Energy LLC.

In November, LFG announced that its subsidiary, Archaea Holdings, LLC, entered a long-term RNG purchase and sale agreement with NW Natural Holdings (NWN) subsidiary, Northwest Natural Gas Company. However, immediate gains might not be realized from this agreement.

LFG’s total revenue and other income increased 529.5% year-over-year to $11.99 million in its fiscal third quarter ended September 30. However, its operating loss increased by 1,499.8% from the same period last year to $9.42 million. And its net loss rose 3,445% from the prior-year quarter to $21.34 million.

Analysts expect LFG’s EPS to come in at a negative $0.38 for the current year (fiscal 2021).

LFG’s shares have declined 12% in price since it went public on September 16 to close yesterday’s trading session at $17.55. It has declined 9.3% over the past five days.

It is no surprise that LFG has an overall F rating, which translates to a Strong Sell in our POWR Rating system.

LFG has an F grade for Value and Quality and a D grade for Stability and Sentiment. It is ranked #58 in the Utilities – Domestic industry. To see the additional POWR Ratings for Growth and Momentum for LFG, click here.

ES shares were trading at $89.21 per share on Wednesday afternoon, up $0.25 (+0.28%). Year-to-date, ES has gained 6.08%, versus a 26.40% 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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