Utility companies represent a compelling investment opportunity due to their indispensable nature in providing services like heating, water, electricity, gas, etc. These companies are strategically positioned for long-term growth as the world embraces cleaner energy sources.
Therefore, it could be prudent for investors to consider adding some exposure to high-rated utility stocks, such as Enel SpA (ENLAY), Centrica plc (CPYYY), and TransAlta Corporation (TAC), to strengthen your portfolio.
Last month, the Federal Reserve announced another quarter-point hike, lifting interest rates to their highest level in 22 years. Also, it dropped a tentative hint that another rate hike could be on the cards this year.
With volatility gripping the markets, investing in utility stocks could help add a defensive layer to your portfolio. As utilities are a necessity, companies in this sector are often resilient in a tumultuous market situation.
Further, the utility markets are poised for significant growth due to the rapid expansion of renewable power generation capacities. Governments worldwide are promoting the use of renewable energy sources by providing incentives and subsidies to solar power generation companies. As a result, the global utility market is expected to reach $8.31 trillion by 2027, growing at a CAGR of 6.8%.
Thus, those looking to hedge against market uncertainty this year could consider adding fundamentally robust utility stocks ENLAY, CPYYY, and TAC.
Let’s take a closer look at the fundamentals of the featured stocks.
Enel SpA (ENLAY)
Based in Rome, Italy, ENLAY operates as an integrated electricity and gas operator worldwide. The company generates, distributes, transmits, and sells electricity; transport and markets natural gas; and constructs and operates generation plants and distribution grids.
On July 13, ENLAY announced that it had signed an agreement with INPEX Corporation through its fully-owned subsidiary Enel Green Power S.p.A. to sell 50% of the two entities owning all of the group activities in Australia, namely Enel Green Power Australia Pty Ltd and Enel Green Power Australia Trust.
Upon the closing of the transaction, Enel Green Power and INPEX are expected to be jointly controlled by Enel Green Power Australia. The deal is expected to generate a positive impact of nearly €87 million ($94.74 million) on ENLAY’s fiscal 2023 ordinary and reported EBITDA.
In the same month, ENLAY’s electric mobility company, Enel X Way, and Saba Italia announced a collaboration to provide 51 charging stations in 17 Saba Italia-managed parking lots across Italy.
Enel's Waybox stations, offering 7.4 kW AC power, are accessible via the Enel X Way app for convenient electric vehicle charging. This partnership aims to enhance EV owners' experience and promote sustainable mobility for more livable cities.
For the fiscal half of the fiscal year 2023 (ended June 30), ENLAY’s operating profit increased 35.4% year-over-year to €6.12 billion ($6.66 billion), while its profit for the period increased 58% from the year-ago value to €3.08 billion ($3.35 billion).
Its EBITDA and EBIT rose 18% and 35.4% from the prior-year period to €9.68 billion ($10.54 billion) and €6.13 billion ($6.68 billion). Also, its earnings per share increased 50% year-over-year to €0.24.
Street expects ENLAY’s revenue for the current quarter ending September 30, 2023, to be $34.27 billion. For the fiscal year 2024, its revenue is expected to grow year-over-year to $120.44 billion. Additionally, it topped the revenue estimates in each of the trailing four quarters, which is excellent.
Over the past three years, its revenue and net income have grown at CAGRs of 18.9% and 9.5%, respectively. Likewise, its EPS increased at an 8.9% CAGR over the same period.
The stock has gained 29.6% over the past year to close the last trading session at $6.44.
ENLAY’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ENLAY has a B grade for Growth, Value, and Sentiment. It is ranked #2 out of 55 stocks in the Utilities - Foreign industry. Click here to see the other ratings of ENLAY for Momentum, Stability, and Quality.
Centrica plc (CPYYY)
Based in Windsor, the United Kingdom, CPYYY is an energy services and solutions company that operates through British Gas Services & Solutions; British Gas Energy; Centrica Business Solutions; Bord Gáis Energy; Energy Marketing & Trading; and Upstream segments.
On July 24, Yorkshire Water, an essential water and wastewater services provider for the Yorkshire Region, and CPYYY signed a 15-year agreement to offtake biomethane production and manage shipping, trading, and balancing of production from two plants developed by SGN Commercial Services.
Kristian Gjerløv-Juel, Director for Renewable Energy Trading and Optimisation at Centrica Energy Trading, commented, “This agreement marks an important milestone for Centrica’s biomethane activities in the UK.”
On July 11, CPYYY signed a long-term Sale and Purchase Agreement with Delfin Midstream Inc. for 1.0 million tonnes per annum of Liquefied Natural Gas (LNG) for 15 years.
This deal is worth $8 billion and could provide enough energy to heat 5% of homes in the United Kingdom. This is part of CPYYY’s efforts to build further resilience in the country’s energy security and might reduce the risk of energy shortages.
In the same month, CPYYY revealed that its Business Solutions segment had secured the development rights to a 65MW, two-hour battery storage project in Perthshire, Scotland, marking the largest battery storage acquisition.
Once connected to the grid in 2028, the battery will be able to store enough electricity to power 130,000 homes for an hour. This project is expected to help improve energy security and maximize the potential of offshore wind farms in the North Sea.
For the six months that ended June 30, 2023, CPYYY’s group revenue increased 60.1% year-over-year to £16.52 billion ($21.05 billion). Its gross profit amounted to £8.01 billion ($10.21 billion) compared to a gross loss of £274 million ($349.18 million) in the year-ago period.
The company’s adjusted operating profit grew 55.2% from the year-ago value to £2.08 billion ($2.65 billion), while its adjusted EBITDA increased 38.8% year-over-year to £2.30 billion ($2.93 billion).
In addition, its adjusted earnings attributable to shareholders came in at £1.47 billion ($1.87 billion), representing a 127.9% year-over-year increase. Also, its adjusted EPS stood at 25.8p, up 134.5% year-over-year.
The consensus revenue estimate for the current year (ending December 2023) is expected to be $38.33 billion. Its revenue and EBITDA have grown at impressive CAGRs of 56.9% and 107.7%, respectively, over the past three years. Also, its EBIT has improved at a 134.9% CAGR over the same period.
CPYYY’s shares have gained 90.1% over the past year and 60.5% year-to-date to close the last trading session at $7.32.
CPYYY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It also has an A grade for Value and Quality and a B for Growth and Sentiment. Out of 55 stocks in the same industry, it is ranked first. Click here to view CPYYY’s ratings for Momentum and Stability.
TransAlta Corporation (TAC)
Headquartered in Calgary, Canada, TAC develops, produces, and sells electric energy through Hydro; Wind and Solar; Gas; Energy Transition; and Energy Marketing segments. The company owns hydro, wind and solar, natural gas-fired, and coal-fired facilities. It serves municipalities, medium and large industries, businesses, and utility customers.
On July 11, TAC announced the acquisition of all the outstanding common shares of TransAlta Renewables Inc. The combined company enhances diversification, and increases public float and trading liquidity, with attractive transaction metrics that unlock value to the benefit of all shareholders.
“The combined company’s greater scale and enhanced positioning will drive benefits and unlock value for all of our shareholders. The combination of the two companies will be underpinned by a single strategy that provides greater clarity to investors and will support future growth,” said Mr. John Kousinioris, TAC's President and Chief Executive Officer.
For the fiscal second quarter that ended June 30, 2023, TAC’s revenues increased 36.5% year-over-year to C$625 million ($461.57 million). Net earnings attributable to common shareholders amounted to C$62 million ($45.79 million) and C$0.23 per share compared to a loss of C$80 million ($59.08 million) and C$0.30 per share in the prior-year quarter.
Its adjusted EBITDA increased 38.7% from the year-ago value to C$387 million ($285.80 million). The company’s free cash flow increased 91.7% year-over-year to C$278 million ($205.31 million).
In addition, the company raised its 2023 full-year financial guidance, with adjusted EBITDA expected to be in the range of C$1.7 billion ($1.25 billion) to C$1.8 billion ($1.32 billion), an increase of 17% at the midpoint of prior guidance.
Free Cash Flow is projected to range between C$850 million ($627.73 million) to C$950 million ($701.58 million), an increase of 29% at the midpoint of previous guidance.
Analysts expect TAC’s revenue to increase 7.9% year-over-year to $2.37 billion for the current year ending December 2023. Its EPS is expected to increase by 12.5% per annum over the next five years. Additionally, it topped the consensus revenue estimates in each of the trailing four quarters.
Over the past three years, its revenue and EBITDA have grown at CAGRs of 15.9% and 34.4%, respectively, while its EPS improved at a 45.5% CAGR over the same period.
The stock has gained 9.6% year-to-date to close the last trading session at $9.83.
It’s no surprise that TAC has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Sentiment and a B for Value and Quality. Within the same industry, it is ranked #3.
In addition to the POWR Ratings we’ve stated above, we also have TAC’s ratings for Growth, Momentum, and Stability. Get all TAC ratings here.
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ENLAY shares were trading at $6.44 per share on Tuesday morning, down $0.00 (0.00%). Year-to-date, ENLAY has gained 25.06%, versus a 16.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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