The current macroeconomic backdrop has weighed heavily on investor sentiments, leaving the stock market volatile. The utility sector, which provides gas, electricity, and water, is considered a good investment for those who want recession-proof stocks in their portfolio.
Against this backdrop, utility stocks Centrica plc (CPYYY) and Pampa Energía S.A. (PAM) look poised for strong growth in the upcoming months, owing to the reasons mentioned in the article.
The utility sector plays a vital role in economic and social development. Even though the broader economy is facing the onslaught of various challenges, the sector is well-positioned to witness robust growth, given its defensive nature.
In addition, the United States is transitioning from a petro-state to an electro-state to reduce greenhouse gases and make clean energy alternatives more accessible and affordable to consumers and businesses. Utilities are at the epicenter of such a transition.
Moreover, the rising adoption of improved digitalized technology is anticipated to revolutionize the utilities sector. Gartner's Distinguished VP Analyst, Rich McAvey, has highlighted that energy companies are using digital advancements to enhance productivity, modernize processes, and discover novel sources of revenue.
Furthermore, the utilities market is expected to grow to $8.31 trillion in 2027 at a CAGR of 6.8%.
Amid the current economic scenario, fundamentally strong utility stocks CPYYY and PAM could be wise portfolio additions now.
Centrica plc (CPYYY)
Headquartered in Windsor, the United Kingdom, CPYYY operates as an integrated energy company in the U.K., Ireland, Scandinavia, and North America. It operates through British Gas Services & Solutions; British Gas Energy; Centrica Business Solutions; Bord Gáis Energy; Marketing & Trading; and Upstream segments.
On April 5, CPYYY announced that it had started work on a 20MW hydrogen-ready gas-fired peaking plant in Worcestershire. The company will install eight U.K.-assembled containerized engines to burn natural gas at a previously decommissioned power plant in Redditch. The plant is expected to be operational later this year.
In terms of forward EV/EBITDA, CPYYY’s 2.22x is 80.2% lower than the 11.21x industry average. Its forward EV/EBIT multiple of 2.98 is 84.8% lower than the 19.55x industry average.
CPYYY’s revenue has grown at a 22.3% CAGR over the past three years. Moreover, its EBIT has grown at 47.7% CAGR over the past three years.
CPYYY’s group revenue for the fiscal year that ended December 31, 2022, increased 61% year-over-year to £23.74 billion ($29.73 billion). Its gross profit rose 25.5% over the prior-year period to £2.05 billion ($2.56 billion). The company’s total assets increased 7.2% year-over-year to £29.04 billion ($36.37 billion).
Analysts expect CPYYY’s revenue for the fiscal year ending December 2023 to increase 22.2% year-over-year to $49.31 billion.
Over the past six months, the stock has gained 60.3% to close the last trading session at $5.66.
CPYYY’s strong fundamentals are reflected in its POWR Ratings. CPYYY has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Growth and a B for Value, Momentum, Stability, Sentiment, and Quality. It is ranked first among 55 stocks in the B-rated Utilities – Foreign industry.
Click here to see all the ratings of CPYYY.
Pampa Energía S.A. (PAM)
Based in Buenos Aires, Argentina, PAM is an integrated power company that generates and transmits electricity. The company also explores, produces, and distributes oil, gas, and petroleum products.
The stock’s forward Price/Sales of 1.78x is 15.8% lower than the 2.11x industry average. In terms of non-GAAP forward P/E, PAM is trading at 6.15x, 66% lower than the 18.11x industry average.
PAM’s revenue has grown at 10.9% and 31.6% CAGRs over the past three and five years, respectively. Moreover, its EBIT and EBITDA have grown at 11.1% and 8.9% CAGRs over the past three years, respectively.
For its fiscal fourth quarter that ended December 31, 2022, PAM’s sales revenue increased 10.3% year-over-year to $448 million. The company’s gross profit came in at $165 million, indicating a 41% rise from the prior-year quarter. Its operating income came in at $150 million for the quarter, up 41.5% from the prior-year quarter.
Moreover, PAM’s net income for the same quarter came in at $111 million, representing a 192.1% rise from the prior-year quarter. Its net income per share to shareholders stood at $0.08, up 166.7% year-over-year.
Analysts expect the company’s EPS to be $5.13 for the fiscal year ending December 2023. Its revenue is expected to come in at $2.06 billion for the same fiscal year, indicating a 70.3% year-over-year improvement. It topped consensus EPS in each of the four trailing quarters.
Over the past year, the stock has gained 56.3%. Over the past six months, it has gained 30.4% to close its last trading session at $33.25.
PAM’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth, Momentum, and Sentiment. PAM is ranked #4 within the same industry.
Click here to see the additional ratings for PAM’s Stability and Quality.
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CPYYY shares were trading at $5.71 per share on Thursday afternoon, up $0.06 (+0.97%). Year-to-date, CPYYY has gained 25.22%, versus a 6.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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