Infrastructure
Deutsche Bank Raises Price Targets on Top Utilities as Rates Stay Low
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A couple of years ago, the utilities were among the hottest in the S&P 500 as interest rates were driven to the lowest levels since the 1950s as the Federal Reserve pulled out all the stops to generate economic growth. Although growth was hard to come by, the unemployment numbers continued to drift down and at the end of 2015, the Fed finally raised rates for the first time in years.
Since then, the Fed has raised rates twice, and long-term rates have basically gone nowhere as the yield curve has flattened. Utility stocks have acted much better than expected this year, up 6%, which is slightly better than the S&P 500. In a new research report, Deutsche Bank remains very selective on the industry and carefully raised the price targets on five stocks that are rated Buy.
American Electric Power
This industry leader is also a solid dividend-paying company, one that some on Wall Street feel could beat earnings estimates. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.3 million customers in 11 states.
It ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765 kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.
American Electric Power shareholders are paid a solid 3.56% dividend. The Deutsche Bank price objective on the shares was raised to $72 from $70. The Wall Street consensus target price is $68.08. The stock closed on Monday at $67.50 a share.
CMS Energy
This stock offers a solid dividend and good upside potential. CMS Energy Corp (NYSE: CMS) operates as an energy company primarily in Michigan through three segments. The Electric Utility segment engages in the generation, purchase, transmission, distribution and sale of electricity to residential, commercial and diversified industrial customers in lower Michigan.
The Energy Utility segment is involved in the purchase, transmission, storage, distribution and sale of natural gas. This segment’s gas transmission, storage and distribution system comprises 1,686 miles of transmission lines; 15 gas storage fields with a total storage capacity of 309 billion cubic feet and a working gas volume of 151 billion cubic feet; 27,537 miles of distribution mains; and seven compressor stations with a total of 157,939 installed and available horsepower.
The Enterprises segment engages in the independent power production and marketing activities.
CMS Energy shareholders are paid a 2.96% dividend. Deutsche Bank raised its price objective to $48 from $47, and the posted consensus price target is $45.24. The shares closed most recently at $44.60.
Eversource Energy
This company is off the radar of many investors, but it still offers solid value at current levels. Eversource Energy (NYSE: ES) is a utility holding company engaged in the energy delivery business. Its Electric Transmission segment owns and maintains transmission facilities that are part of an interstate power transmission grid over which electricity is transmitted throughout New England.
The Electric Distribution segment consists of the distribution businesses, which are engaged in delivering electricity to retail customers in Connecticut, Massachusetts and New Hampshire, as well as to regulated electric generation businesses. This segment consists of the distribution businesses of The Connecticut Light and Power Company, NSTAR Electric Company, Public Service Company of New Hampshire and Western Massachusetts Electric Company.
The company also has a Natural Gas Distribution segment.
Shareholders in Eversource Energy are paid a solid 3.2% dividend. Deutsche Bank has a new price target of $61, up from the previous $59. The posted consensus target is $58.97, and the stock closed most recently at $59.00 per share.
NextEra Energy Partners
This company is the highest yielding of these Deutsche Bank utility stocks to buy. NextEra Energy Partners L.P. (NYSE: NEP) was formed by NextEra Energy to own, manage and acquire long-term contracted clean energy generation assets. The company’s initial portfolio consists of wind and solar projects in North America. Growth comes principally through the dropdown of additional assets from its sponsor and general partner, NextEra Energy.
NextEra Energy Partners not only owns interests in wind and solar projects in North America, but in seven contracted natural gas pipeline assets in Texas as well. It has a portfolio of approximately 2,926 megawatts of renewable energy projects. For investors concerned about the environment, this is a solid play.
NextEra Energy Partners shareholders are paid a sizable 4.03% dividend. Deutsche Bank raised its price target to $35 from $33, bringing it in line with the consensus target of $35.06. The stock closed Monday at $33.51 a share.
PG&E
This is a top utility that investors can still feel very comfortable owning now. PG&E Corp. (NYSE: PCG) is one of the largest combined natural gas and electric utilities in the United States. Based in San Francisco, with more than 20,000 employees, the company delivers energy to nearly 16 million people in Northern and Central California.
The company operates 141,215 circuit miles of electric distribution lines, 18,616 circuit miles of interconnected transmission lines, 42,141 miles of natural gas distribution pipelines and 6,438 miles of gas transportation pipelines. It operates generation facilities with energy sources such as nuclear, hydroelectric, fossil fuel-fired and photovoltaic.
The company recently announced a clean fuel rebate of $500. The rebate is a bonus for using electricity as a clean transportation fuel, and eligible electric vehicle owners can receive one rebate per owned or leased vehicle.
PG&E shareholders are paid a 2.95% dividend. The $67 Deutsche Bank price target was raised to $69. The consensus posted consensus estimate is $67.72. Shares closed trading on Monday at $67.06.
While the upside on these stocks is somewhat limited, the safety and consistent dividends make good sense for more conservative investors. It probably makes sense to dollar cost average and buy the shares over a six-month to one-year period to help hedge against rising interest rates.
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