4 Large-Cap Utilities On A Roll: Can They Climb Higher?

Amid geopolitical tensions in Iran and an impending global economic slowdown, one sector that is immune to the vagaries of economic cycle is the utility sector. Utilities are relatively protected from large swings in the stock market and are therefore considered a defensive investment, unaffected by economic cycles and politics.

Utility companies enjoy a reputation for safety, given the regulated nature of businesses, which lend their revenues a high level of certainty. These companies also benefit from the domestic orientation of their businesses, which shield them from foreign currency translation issues. Utilities offer solid dividend payouts and excellent capital appreciation over the longer term.

Last week, the Utilities Select Sector SPDR (XLU) hit a 52-week high of $61.38. Many of the utility stocks are currently trading near 52-week high and are expected to scale higher. Below we have highlighted four notable utilities, namely NextEra Energy, Inc. (NYSE:NEE) , Southern Company (NYSE:SO) , Dominion Energy Inc. (NYSE:D) and Exelon Corporation (NYSE:EXC) . Let’s analyze the driving factors behind each stock individually.

Strategic Capital Investments Bode Well for NextEra

NextEra — the biggest utility stock in terms of market capitalization — hit a 52-week high of $208.91 a couple of days back, before closing the trading session a tad lower at $206.22. The stock has increased 18.7% on a year-to-date basis. In the past five years, NextEra’s earnings increased around 8%, compounded annually. The company’s dividend growth has been impressive. Well chalked-out capital investment plan, solid portfolio of natural gas pipeline projects and the addition of renewable generation assets are boosting the firm’s performance.The Zacks Rank #3 (Hold) company intends to invest nearly $39.5 billion in different projects over the 2019-2023 period. These investments will be directed to modernize and strengthen the existing infrastructure of the company, enabling it to serve the expanding customer base more effectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AGL Resources (NYSE:GAS) Buyout Fuels Southern Company

Southern Company, with a market cap of $58 billion, hit a 52-week high of $56.54 on Jun 24. Year to date, shares of the company have rallied 27.4%. The buyout of energy services holding company, AGL Resources Inc., helped Southern Company to significantly increase the customer base, while diversifying business by adding gas distribution assets. Operational and commercial synergies from the deal will likely be accretive to Southern Company’s earnings in the long run. The company’s solid dividend yield and promising prospects of Vogtle plant are major positives. Southern Company’s divestment efforts to streamline portfolio and reduce debt bode well for the firm.

Merger With SCANA Buoys Dominion

Dominion (with a market cap of $63 billion) closed yesterday’s trading session at $76.46, just a little lower than 52-week high of $79.47 that was attained on Jun 24. The stock has risen more than 10% on a year-to-date basis. Investments to expand and strengthen its existing infrastructure, along with contribution from organic and inorganic assets are like to keep up the momentum of Dominion. Dominion completed the merger with SCANA Corporation on Jan 1, 2019, which added several high-quality businesses to its existing business. Dominion plans to invest $26 billion in the 2019-2023 time period to strengthen its existing infrastructure. Secured earnings from more than 95% regulated assets will drive Dominion’s bottom-line growth.

Robust Investment and Cost Discipline to Drive Exelon

Exelon, with a market cap of around $46 billion, hit a 52-week high of $51.18 earlier this month. The stock has risen 6% on a year-to-date basis and carries enough promise to scale further. Exelon’s organic investment is poised to strengthen the existing portfolio of assets, cost management and the hedging program.It plans to invest nearly $22.9 billion over the 2019-2022-time frame to improve the reliability of operations. Exelon expects earnings per share to increase in the range of 6-8% per year during the 2018-2022 time period, courtesy of rate base growth. Utility customers across Exelon’s service territories benefited from tax reforms and cost-saving initiatives undertaken by the company. In addition, strong cash flow generating capacity will allow Exelon to lower outstanding debt in the range of $2.2-$2.8 billion over the next four years.

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