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U.S. Electric Utilities Industry Analysis

UpdatedAug 19, 2022
DataAggregated Company Financials
Companies35
  • 7D2.5%
  • 3M9.8%
  • 1Y8.4%
  • YTD5.8%

The Electric Utilities industry is up 2.2% in the last week, with Duke Energy up 3.8%. This takes the industry's 12 month performance to a gain of 8.5%. Earnings are forecast to grow by 9.4% annually.

Industry Valuation and Performance

Has the U.S. Electric Utilities Industry valuation changed over the past few years?

DateMarket CapRevenueEarningsPEAbsolute PEPS
Fri, 19 Aug 2022US$783.6bUS$305.5bUS$30.3b21.9x25.8x2.6x
Sun, 17 Jul 2022US$698.9bUS$292.9bUS$27.9b21.2x25.1x2.4x
Tue, 14 Jun 2022US$677.1bUS$292.9bUS$27.9b20.6x24.3x2.3x
Thu, 12 May 2022US$708.3bUS$292.8bUS$27.0b20.6x26.3x2.4x
Sat, 09 Apr 2022US$761.9bUS$288.1bUS$26.8b22.2x28.4x2.6x
Mon, 07 Mar 2022US$700.4bUS$288.2bUS$26.8b20.4x26.2x2.4x
Wed, 02 Feb 2022US$687.1bUS$260.1bUS$27.0b22.5x25.5x2.6x
Fri, 31 Dec 2021US$727.7bUS$259.0bUS$25.7b23x28.3x2.8x
Sun, 28 Nov 2021US$680.2bUS$259.0bUS$25.7b21.8x26.4x2.6x
Tue, 26 Oct 2021US$679.2bUS$250.5bUS$24.6b21.1x27.6x2.7x
Thu, 23 Sep 2021US$661.9bUS$250.9bUS$25.4b21.6x26x2.6x
Sat, 21 Aug 2021US$702.9bUS$250.9bUS$25.4b22x27.6x2.8x
Sat, 05 Jun 2021US$647.0bUS$243.4bUS$23.1b20.5x28x2.7x
Tue, 09 Mar 2021US$584.5bUS$231.2bUS$21.3b19x27.5x2.5x
Mon, 30 Nov 2020US$617.8bUS$230.6bUS$22.0b20x28.1x2.7x
Thu, 03 Sep 2020US$554.2bUS$213.4bUS$28.0b19.2x19.8x2.6x
Sun, 07 Jun 2020US$571.2bUS$233.9bUS$22.0b20.6x26x2.4x
Sat, 29 Feb 2020US$600.3bUS$236.8bUS$24.9b22.5x24.1x2.5x
Tue, 03 Dec 2019US$581.7bUS$227.9bUS$14.1b23.1x41.1x2.6x
Fri, 06 Sep 2019US$575.7bUS$227.8bUS$15.8b23.3x36.4x2.5x
Price to Earnings Ratio

36.4x


Total Market Cap: US$575.7bTotal Earnings: US$15.8bTotal Revenue: US$227.8bTotal Market Cap vs Earnings and Revenue0%0%0%
U.S. Electric Utilities Industry Price to Earnings3Y Average 27.6x202020212022
Current Industry PE
  • Investors are relatively neutral on the American Electric Utilities industry at the moment, indicating that they anticipate long term growth rates to remain steady.
  • The industry is trading close to its 3-year average PE ratio of 27.6x.
  • The industry is trading close to its 3-year average PS ratio of 2.6x.
Past Earnings Growth
  • The earnings for companies in the Electric Utilities industry have grown 24% per year over the last three years.
  • Revenues for these companies have grown 10% per year.
  • This means that more sales are being generated by these companies overall, and subsequently their profits are increasing too.

Industry Trends

Which industries have driven the changes within the U.S. Utilities industry?

US Market1.35%
Utilities2.83%
Electric Utilities2.52%
Electric Utilities2.52%
Industry PE
  • Investors are most optimistic about the Electric Utilities industry, which is trading close to its 3-year average PE ratio of 21.2x.
  • Analysts expect its future annual earnings growth (9.4%) to be largely in line with prior year's earnings growth.
  • This could indicate that the market believes analysts are underestimating its future growth since investors are willing to pay a bigger premium today.
Forecasted Growth
  • Analysts are most optimistic on the Electric Utilities industry, expecting annual earnings growth of 9.4% over the next 5 years.
  • This is roughly in line with its past earnings growth rate.

    Top Stock Gainers and Losers

    Which companies have driven the market over the last 7 days?

    CompanyLast Price7D1YValuation
    DUK Duke EnergyUS$112.583.8%
    +US$3.1b
    5.3%PE22.8x
    SO SouthernUS$79.722.3%
    +US$1.9b
    20.1%PE28x
    AEP American Electric Power CompanyUS$104.373.1%
    +US$1.6b
    15.5%PE20.8x
    NEE NextEra EnergyUS$90.240.9%
    +US$1.6b
    6.7%PE68.7x
    XEL Xcel EnergyUS$76.993.2%
    +US$1.3b
    9.8%PE25.8x
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    Latest News

    Aug 17

    NextEra Energy: A Dividend Growth Champion You Will Enjoy

    In long-term investing, it's important to incorporate low-volatility dividend growth as it's a good foundation for outperformance. NextEra Energy fits the bill perfectly thanks to its recession-proof business model, focus on renewables, and steady and high earnings growth. The dividend isn't high, but dividend growth is consistent and high. While the valuation isn't extremely cheap, I recommend investors to buy and accumulate NEE shares on weakness. Introduction I've been excited to write this article for a number of reasons. The first reason is that we will be discussing a stock that offers everything I'm looking for in a high-quality dividend growth stock. NextEra Energy (NEE) offers a decent yield, high dividend growth, low volatility, and outperformance. All of it is backed by a strong fundamental business. The second reason is that because of these qualities, it's a perfect stock for a wide range of investors including myself as NEE combines upside growth potential and limited downside. So, let's get to it! Why Low Volatility Dividend Growth Is So Important Let me start this article with a lecture on why low volatility investing is so important. While I own a wide variety of different dividend (growth) stocks, I've increasingly focused on buying low-volatility dividend growth. This is my portfolio: Author Portfolio If you are familiar with my articles, you probably know where this is going. However, it's just too important to not include a theoretical background in this article - especially because NEE is indeed one of the best places to be. The title isn't clickbait. Basically, low volatility generates outperforming returns. Normally, one would think that high volatility gets that job done better because higher risks should lead to higher returns. On a long-term basis, that's not the case. As the chart below shows, the higher the volatility, the lower the compounded return. The performance really starts to drop when volatility exceeds 25%. ROBECO In this case, outperforming returns are caused by downside protection. The table below comes from a 2013 article published in The Journal Of Investment Consulting, Geoffrey Gerber explains why dividend growth is such a good defensive equity strategy. He concludes that: Reduced-volatility equity strategies utilizing dividend growth in the stock selection process are shown to have historically provided a boost to risk-adjusted performance. As the table shows, investment A had the highest return as it turned $1.0 million almost into $4.3 million. This portfolio had a high annual return and a low standard deviation. Even investment C outperformed investment B despite a lower annual average return. The key was lower volatility. The Journal Of Investment Consulting (Raw Data: Twin Capital) In other words, even if a dividend stock does not outperform during (every) bull market, outperformance during bear markets gives investors an edge. In light of this, Nasdaq also looked into this issue finding that: Aside from the 1-year data, the low volatility strategy has had superior risk-adjusted returns on a 3, 5, 10-year, and since inception basis. This shows that low volatility is better at providing long-term capital appreciation compared to high volatility strategies, which makes low volatility a critical investment factor to consider. Nasdaq Moreover, and with regard to dividend growth, it's fair to say that a sample of quality dividend growth stocks is able to beat the market. Going back to 1973, dividend growth stocks beat the (equal weight) market by a mile. Hartford Funds Essentially, a dividend is a stamp of approval. It means a company is doing well and able to let shareholders benefit. In this case, I'm not talking about companies that pay dividends with borrowed money. These "bad apples" are quickly punished by the market and made irrelevant. Companies that are able to grow dividends on a consistent basis prove that they can survive the test of time, letting investors benefit from consistent growth. That's an even bigger stamp of approval. Also, it often helps investors protect income against inflation. That's where the quality aspect comes from, which helps companies to beat the market in tough economic times - that's when most bear markets occur. Needless to say, an anti-cyclical business model makes the probability of low volatility even higher. After all, if a business is not expected to see a decline in sales when economic growth falls, investors will cause the stock to do rather well. So, that's where NextEra comes in. NextEra's (Green) Outperformance With a market cap of $179 billion, Juno Beach, Florida-based NextEra Energy is the largest regulated electric utility in the United States. According to the company: [...] NEE's segments for financial reporting purposes are FPL and NEER. NEECH, a wholly owned subsidiary of NEE, owns and provides funding for NEE's operating subsidiaries, other than FPL and its subsidiaries. NEP, an affiliate of NextEra Energy Resources, acquires, manages and owns contracted clean energy projects with stable, long-term cash flows. NextEra Energy FPL (Florida Power & Light) is the largest vertically integrated electric utility in the United States, measured by MWh sales. Moreover, FPL is considered to be one of the best utility franchises in the United States servicing 5.7 million customer accounts. The utility company aims to keep utility bulls among the lowest in Florida - for residential customers. NextEra Energy Next Era Energy Resources (part of NEET), is the world leader in electricity generated from wind and solar sources. As of December 31, 2021, the electric generation was 28 megawatts. 20GW was provided by wind energy, followed by 4GM of solar, 2GW of nuclear energy, and 2GW from natural gas/oil sources. NextEra Energy In order to achieve the Paris Climate Agreement goals for 2050 (full decarbonization), the US economy will need at least 7 thousand GW of renewables and storage capacity. In 2020, that number was 170 GW. Roughly half of this is expected to come from wind power. Hydrogen is expected to be roughly 10%. NextEra is actively pursuing hydrogen opportunities as it has the infrastructure to produce green hydrogen. NextEra is also aggressively investing in new businesses to expand its clean energy footprint. Last month, the Wall Street Journal reported that a Nebraska-based startup looking to produce hydrogen with natural gas while capturing its emissions is getting funding from major players in the industry: Investors including BlackRock Inc. and NextEra Energy Inc. are putting more than $300 million into Monolith, valuing the company at more than $1 billion. The investment adds to a summer flood of money that is trying to turn hydrogen into a pillar of the energy transition. Needless to say, NextEra is one of the cleanest utilities in North America. In 2005, the company was 37% "cleaner" based on its carbon dioxide emissions. In 2020, the company was 47% cleaner than the average electric power company. During this period, clean electricity generation has grown by 75%. Now, before I continue to talk about the energy transition, let me show you why one of the key reasons why I am writing this article, in the first place. Since 1986, NEE shares have returned 13.8% per year. That beats the S&P 500 by 300 basis points per year. That's a big deal. Even more important, the standard deviation was just 18.4%, barely higher than the S&P 500's standard deviation, despite comparing a single stock to a diversified basket of 500 stocks. Hence, the company scores high on a volatility-adjusted basis as well (Sharpe/Sortino ratios). Portfolio Visualizer In this case, it's important to mention that this outperformance has continued in recent years. Whether it's a 3, 5, or 10-year time horizon, NEE has outperformed the market with subdued volatility. Portfolio Visualizer This outperformance is not just caused by the trend in renewables. It's provided by the way NextEra generates tremendous value for shareholders, despite sky-high investment needs. Ignoring everything the company invested prior to 2019, the company expects to invest more than $60 billion of capital from 2019 through 2022. The chart below shows what that looks like. In 2016/2017, the company did close to $10 billion in annual CapEx, which is a lot by any standard. However, in the years ahead, these numbers are expected to rise to more than $20 billion (per year). As the company is unable to pay this out of pocket, it needs new debt. After all, free cash flow is in deeply negative territory. It needs funding for CapEx and for its dividend. As a result, the company is expected to end up with close to $75 billion in net debt in 2024. That would be an increase from less than $30 billion in 2016. However, the debt ratio is not expected to grow above 5.0x in the years ahead, which is good news. TIKR.com There's more good news as the company is generating value with new debt. Between 2006 and 2021, the company grew earnings per share by 8.4% per year. Please note the PER SHARE part as this incorporates stock dilution as a way to provide funding. The good news is that stock dilution is limited. The company mainly uses debt funding as the number of shares outstanding has increased by just 4.2% between 2017 and 2021. NextEra Energy With that said, the company expects to maintain high EPS growth until at least 2025. This is expected to pave the way for a continuation of its impressive dividend growth history, which I will discuss next. NextEra Energy The NEE Dividend Looking at the NEE dividend scorecard, we see that the grades are great when comparing NEE to its utility peers. The only thing that immediately catches one's eye is the low dividend yield grade. Seeking Alpha First of all, the utility sector is typically a place where people go for high yield. The same goes for sectors like energy or real estate. NEE Dividend Yield data by YCharts Second of all, NEE isn't a high-yielding stock at all. The company currently pays a $0.425 quarterly dividend. That's $1.70 per year per share. This implies a 1.90% dividend yield using the current stock price of close to $90.

    PPL

    US$30.91

    PPL

    7D

    5.0%

    1Y

    5.9%

    SO

    US$79.72

    Southern

    7D

    2.3%

    1Y

    20.1%