Utility Favorites: Eversource and NextEra

09/09/2015 8:00 am EST

Focus: STOCKS

Ari Charney

Analyst and Associate Editor, Canadian Edge and Personal Finance

In the second quarter, the 29 utilities in the S&P 500 delivered respectable year over year earnings growth of 2.8%; unfortunately, earnings growth was not accompanied by sales growth as revenue declined by an average of 4.8%, observes Ari Charney, editor of Utility Forecaster.

Looking ahead, analysts forecast utility earnings will grow 4.1% year over year in 2016 on revenue growth of 4.1%.

Drilling down into individual portfolio holdings, once again Eversource Energy (ES) and NextEra Energy (NEE) delivered the strongest results among our utility holdings.

Eversource, a New England-based retail electric utility and natural gas distributor, grew earnings per share 27% year over year, to $0.66, beating analyst estimates by 17.4%, for its sixth consecutive upside surprise.

Meanwhile, revenue rose 8%, to $1.8 billion, exceeding the consensus forecast by 3.9%.

The firm’s transmission segment was one of the key growth drivers during the second quarter, with earnings surging 83.1% year over year.

Transmission assets currently offer the highest authorized returns on equity of any regulated utility assets.

And Eversource is looking to further expand this segment, which currently accounts for nearly 40% of operating profits.

For full-year 2015, analysts forecast earnings per share will rise 8%, to $2.87, on a 4% revenue increase, to $8.0 billion. Thereafter, earnings are projected to grow 6.8% annually over the next five years.

Eversource remains a buy below $54 in our Income Portfolio Aggressive Holdings.

Florida-based NextEra is shrewdly using the stable cash flows generated by its regulated utility to expand into renewable energy.

During the second quarter, NextEra grew earnings per share 9% year over year, to $1.56, beating analyst estimates by 4.2%. And revenue climbed 8%, to $4.4 billion, exceeding the consensus forecast by 2.8%.

Earnings were steady at NextEra’s subsidiary Florida Power & Light Co. Meanwhile, NextEra Energy Resources saw earnings jump nearly 19% thanks to new investments in solar and wind power for its contracted renewables portfolio.

For full-year 2015, analysts forecast earnings per share will rise 6%, to $5.64, on a 2% revenue increase, to $17.4 billion.

Thereafter, earnings are projected to grow 6.4% annually over the next five years, while the dividend is forecast to climb at least 12% annually through 2018.

NextEra is one of our top picks for long-term growth and income and is now a buy below $110 in our Growth Portfolio Core Holdings.

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