Utility stocks have underperformed the market as a whole this year, with the S&P 500 Utilities index easing 1% through Friday, while the overall S&P 500 climbed 7%.
But that left 10 of the 36 utility stocks covered by Morningstar both undervalued, compared to their fair value estimates, and holding narrow-moat (durable-competitive-advantage) ratings from the firm.
DON'T MISS: Buying a Car May Come With a Surprising New Cost (Blame Tesla)
Utilities often perform well during times of market volatility, thanks to resilient earnings and steady dividends.
Here’s the list of Morningstar’s 10 stocks, starting with the most undervalued, as of April 3.
NiSource (NI). Morningstar fair value: $32. April 10 quote: $28.70.
Entergy (ETR). Morningstar fair value: $120. April 10 quote: $110.65.
Duke Energy (DUK). Morningstar fair value: $105. April 10 quote: $99.15.
Alliant Energy (LNT). Morningstar fair value: $58. April 10 quote: $54.80.
American Electric Power (AEP). Morningstar fair value: $97. April 10 quote: $94.55.
DTE Energy (DTE). Morningstar fair value: $116. April 10 quote: $113.50.
Evergy (EVRG). Morningstar fair value: $64. April 10 quote: $62.55.
PPL (PPL). Morningstar fair value: $29. April 10 quote: $28.50.
Public Service Enterprise Group (PEG). Morningstar fair value: $65. April 10 quote: $62.90
Portland General Electric (POR). Morningstar fair value: $50. April 10 quote: $50.45 (no longer undervalued).
Morningstar Analysis
Entergy: “Its growing, energy-hungry customer base and constructive rate regulation in the Southeast give the company a long runway of earnings and dividend growth potential,” Morningstar analyst Travis Miller wrote in a commentary.
“We expect Entergy to invest $5 billion annually on average for at least the next five years to upgrade its expansive grid and build out its renewable energy portfolio.”
Further, “much of this investment has strong support from industrial customers trying to electrify and decarbonize their businesses,” Miller said.
Duke Energy: It’s one of the country’s largest regulated utilities. “Florida is Duke's most constructive and attractive jurisdiction, with higher-than-average load growth and best-in-class regulation,” wrote Morningstar analyst Andrew Bischof.
“That allows for higher-than-average returns on equity, forward-looking rates, and automatic base-rate adjustments. We expect significant solar growth in the region and storm-hardening investments.”
Also, “in North Carolina, Duke's largest service territory, the outlook has improved significantly,” Bischof said. “Recent legislation allows for multi-year rate plans, including rate increases for projected capital investments.”
American Electric Power: It operates numerous utilities, “providing investors protection from any one adverse regulatory ruling,” Bischof wrote.
“Nearly all of the company’s $40 billion capital investment plan through 2027 focuses on regulated investments, supporting annual earnings growth within management's 6%-7% target.”
In addition, “transmission investment is one of AEP's most attractive long-term growth opportunities, given federal incentives to improve the efficiency of the U.S. power grid,” Bischof said. “Moaty transmission and distribution investments account for 65% of AEP's five-year capital investment plan.”
The author of this story owns shares of Duke Energy and Public Service Enterprise Group.
