Plug in to These 2 Utilities

04/15/2020 5:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Our Top 15 Utilities portfolio, which contains a diversified mix of 15 utility stocks designed to be purchased in equal-weighted positions, is making two rank changes; we are adding Dominion Energy (D) and Public Service Enterprise (PEG), notes Richard Moroney, editor of Dow Theory Forecasts.

With a stock-market value of nearly $55 billion, Dominion Energy is among the largest U.S. utilities. Its 5.6% yield dwarfs the utility-sector average of 4.1%. The company serves 3.4 million electricity customers and 3.3 natural-gas customers in six states, as well as plants generating more than 26,000 megawatts of power.

Perhaps because of its size and operational stability (14 consecutive quarters of sales growth), Dominion has held up better than most utilities, though the shares are still down 18% for the year. We appreciate the solidity Dominion brings to the Top 15.

Public Service Enterprise provides electricity to 2.3 million customers and natural gas to 1.8 million in New Jersey and operates a fleet of plants producing more than 12,000 megawatts of power.

While the company has grown sales 4%, per-share profits 5%, and operating cash flow 16% over the last 12 months, analysts don’t expect much, projecting sales growth of 4% and profit growth of 3% this year and sales growth of 2% and profit growth of 2% next year.

Given Public Service Enterprise’s investment in electric lines and gas pipelines and favorable regulatory environment, the targets seem overly low.

At 12 times trailing earnings, Public Service Enterprise trades 23% below the median of 16 for diversified utilities in the S&P 1500 Index. The shares also trade at a discount based on price/cash flow and enterprise value/EBITDA.

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