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Electric Utilities Play - BUY Recommendation!
- Mohit Kumar
- Jan 13, 2022
- 3 min read
Market Summary:
The major indices are mixed at midday following another active and volatile morning session on Wall Street. Treasury yields bounced back overnight following two weaker days, putting renewed pressure on the tech sector and the Nasdaq even though rates gave back their early gains, the most rate-sensitive issues are still trading in the red. Delta Airlines (DAL) beat expectations on both its top and bottom lines in the fourth quarter, so, while the earnings season officially kicks off tomorrow, the first signs are positive concerning the crucial quarter.
Stock Pick Summary:
Today, we diversify into a company that through its subsidiaries, generates, transmits, distributes, and sells electric power to retail and wholesale customers in North America. It is Florida's largest electric utility. It also owns a vast portfolio of renewable-energy assets that combine to make it one of the largest producers of energy from wind and sun. The company is investing billions of dollars to extend its lead. These investments have it on track to grow earnings per share at or near the top end of its 6% to 8% annual target rate through 2023. Meanwhile, it expects to grow its dividend that has a current yield of 1.7% by around 10% annually through at least 2022. Investment opportunities at both Florida Power & Light, as well as in its non-utilities, which include pipelines and renewables, remain lucrative and are likely to continue over the next several years. It is leveraging its leadership in wind, solar, and battery storage to tap into emerging power sources. It believes "green hydrogen" holds a lot of promise; this emissions-free fuel source uses renewable energy to turn water into oxygen and hydrogen. The company is already working on some pilot projects. If they prove commercially viable, green hydrogen could accelerate its long-term growth rate. FPL and Gulf States Power are seeing low double-digit growth in regulatory capital employer, which is a source of earnings power, and customer growth is healthy in the utilities’ service territories. The nonregulated subsidiary continues to benefit from additional renewable-energy projects. These include wind, solar, wind repowering, and battery storage.
At its current price, the shares are not cheap, but we believe growth in the company’s service territory, an improving economy and investments in its growth warrant a higher multiple. The solid performance of all businesses and a growing number of customers in its service territories could continue to driver year over year growth in EPS and revenue. In the meantime, we continue cashing in on the steady dividends.
Risk Meter:
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