4 Utility Stocks Poised To Outpace Earnings Estimates In Q4

Utility stocks’ fourth-quarter results have started to come in, with 29.6% of the utility S&P 500 members having reported results already. The present scenario indicates negative earnings growth for this mature Zacks Utility Sector in the fourth quarter of 2018, with a 7.7% year-over-year decline on a 2.4% fall in revenues. This fourth-quarter scenario might change as a major chunk of utilities are yet to come up with their earnings results. As of now, 2018 utility earnings are expected to improve 12.3% year over year. For more details, refer to our latest Earnings Trends.

Rising interest rates continue to be a concern for the capital-intensive utility stocks. Interest rate hikes increase utilities' cost of capital, impacting margins and compromising on their ability to pay out or hike dividends. In addition, utilities also need to adhere to stringent environmental regulations and withstand challenges from hurricanes and storms.

Fortunes of domestic-focused regulated utilities do not change with the vagaries of the economy. Non-availability of replacement of services provided by utilities is the biggest driving force. Mature utilities gain from the introduction of new technology to maintain their transmission and distribution lines, the introduction of smart meters in their service territories, and regular measures to improve the resilience of services.

The new rates in service territories, customer growth, effective management, control of expenses will have a positive impact on the earnings of utilities. The players are focused on producing more electricity from renewable sources and battery storage projects during adverse situations. The EIA projects utility-scale battery storage capacity to increase by 34 GW during 2020-2050 due to the continued decline in battery storage costs.

Furthermore, the unemployment rate in the United States during the end of the fourth quarter was at an impressive 3.9%. This low level of unemployment boosted demand for new housing units and in turn the requirement for utility services.

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