With the Fed expected to stay committed to its hawkish stance to tame stubborn inflation, the questions regarding recession seem to have shifted from “if” to “when” and “for how long.”
In such a scenario, investors are increasingly turning to defensive sectors, such as utilities, which have a reputation for weathering recession better than others due to consistent demand for their services. Moreover, consistent dividend payouts by utility firms offer steady income generation opportunities amid market uncertainties.
Despite prevalent macroeconomic and geopolitical headwinds, revenues from utilities in the United States are projected to grow at a 6.3% CAGR to reach $1.21 billion by 2026, driven by increasing electrification of mobility and digitization in the economy.
However, utilities major PG&E Corporation (PCG) doesn’t look well positioned to capitalize on the growth opportunities in the sector. During the second quarter of the current fiscal year ended June 30, the company reported operating revenues of $5.12 billion, down 1.9% year-over-year. Its operating income and net income have declined significantly from the year-ago levels.
Furthermore, PCG’s non-GAAP EPS for the second quarter has declined 7.4% year-over-year to $0.25 and missed the consensus EPS estimate of $0.28. Analysts also expect PCG’s EPS for the third quarter ended September 30, 2022, to decline 25% year-over-year to $0.18. The stock has lost 4.6% over the past five trading sessions.
Thus, we think it could be wise to consider investing in fundamentally sound utility stocks, Brookfield Infrastructure Corporation (BIPC), Genie Energy Ltd. (GNE), and Otter Tail Corporation (OTTR), instead of PCG.
Brookfield Infrastructure Corporation (BIPC)
BIPC operates as an infrastructure company with a globally diversified portfolio of infrastructure assets across North and South America, Asia Pacific, and Europe. The Company’s operations consist of the ownership and operation of regulated gas transmission systems in Brazil and regulated distribution operations in the United Kingdom.
On August 23, BIPC announced that it had signed a definitive agreement with Intel Corporation (INTC) to jointly fund Intel’s under-construction semiconductor fabrication facility in Chandler, Arizona. This multi-year capital expansion project will replenish BIPC’s existing backlog of capital projects near completion this year.
For the second quarter of the fiscal year 2022 ended June 30, BIPC’s revenues increased 38.2% year-over-year to $3.68 billion. The company’s cash from operating activities grew 30.1% from the year-ago value to $734 million, while its FFO per unit increased 19.6% year-over-year to $0.67.
BIPC pays a $1.44 per share dividend annually, translating to a 3.72% yield on the current share price. In addition, its four-year average dividend yield is 2.73%.
Analysts expect BIPC’s revenue for the next fiscal year (ending December 2023) to come in at $6.65 billion, indicating an increase of 9.8% from the previous year. The company’s FFO per share for the same period is expected to grow 19.3% year-over-year to $3.28. Shares of BIPC have gained 1.3% intraday to close the last trading session at $38.76.
BIPC’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
BIPC has a grade B for Quality, Stability, Momentum, and Growth. The stock tops the list of 66-stock Utilities – Domestic industry. Click here to get BIPC’s ratings for Value and Sentiment.
Otter Tail Corporation (OTTR)
OTTR operates as a holding company in the United States that engages in electric utility, manufacturing, and plastic pipe businesses. The company and its subsidiaries operate through three segments: Electric; Manufacturing; and Plastics.
On September 9, OTTR paid its quarterly common stock dividend of $0.41 per share. The company pays $1.65 annually as a dividend which translates to a 2.59% yield at the current price. Its 4-year average dividend yield is 2.92%, and the current payout ratio is 25.64%. OTTR’s dividend has grown for eight consecutive years.
For the second quarter of the fiscal year 2022 ended June 30, OTTR’s total operating revenues increased 40.1% year-over-year to $400.04 million, while its operating income grew 102.4% from the prior-year period to $121.07 million. The company’s net income and EPS increased 104.3% and 103% year-over-year to $85.94 million and $2.05, respectively.
Analysts expect OTTR’s revenue and EPS for the current fiscal year ending December 31, 2022, to increase 24.8% and 67% year-over-year to $1.49 billion and $7.06, respectively. The company has an impressive history of surpassing Street EPS estimates in each of the trailing four quarters.
OTTR’s stock has gained 9.6% over the past year to close the last trading session at $62.74.
OTTR’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. It also has a grade B for Growth and Quality. OTTR is ranked #5 in the same industry.
In addition to the above, additional ratings for OTTR’s Momentum, Stability, Sentiment, and Value can be found here.
Genie Energy Ltd. (GNE)
GNE supplies electricity and natural gas to residential and small business customers internationally. The company operates through three segments: Genie Retail Energy (GRE); GRE International; and Genie Renewables.
Its other offerings include energy advisory and brokerage services, solar panel manufacturing and distribution, solar installation design, and project management activities.
On September 20, Genie Renewables (GREW), a division of GNE, announced that it had obtained ownership of site rights to solar generation projects in New York and Pennsylvania with an aggregate capacity of 64MW. With this milestone, the company expects to create significant mid and long-term shareholder value.
On July 25, GNE’s Genie Renewables division launched Sunlight Energy Investments. The new subsidiary will act as the primary equity financing vehicle for solar projects by Genie Renewables and will seek to participate in projects by other solar developers. This move is expected to increase the efficiency of capital allocation across the solar generation industry.
During the second quarter of the fiscal year 2022 ended June 30, GNE’s gross profit increased 218.2% year-over-year to $67.47 million, while its income from operations increased 968.7% year-over-year to $48.48 million. During the same period, the net income attributable to GNE increased 577.5% from the year-ago value to $33.86 million, while its EPS increased 584.2% year-over-year to $1.30.
GNE pays a $0.23 per share dividend annually, translating to a 2.51% yield on the current share price. The stock’s four-year average dividend yield is 3.06%.
GNE’s stock has gained 33.9% over the past six months and 59.2% year-to-date to close the last trading session at $8.96.
GNE’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Value and a B for Momentum, Quality, and Sentiment.
The stock is ranked #2 among 66 Utilities – Domestic industry stocks. Click here for the Growth and Stability ratings of GNE.
PCG shares were unchanged in after-hours trading Thursday. Year-to-date, PCG has gained 17.87%, versus a -22.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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