Even though the utility sector has totally blown away other S&P 500 sectors this year, and many of the stocks in the sector are very pricey, the run may not be over. Some of the top companies could not only post great numbers, but they could be poised for a continued move higher. One thing is for sure, interest rates appear to be going nowhere, and while they recently bounced off multi-generational lows, the increases are barely noticeable.
A new Merrill Lynch research report highlights three top companies that analyst Brian Chin remains very positive on. He thinks that all three are good buys into the second-quarter earnings print, and all remain rated Buy at the firm.
With a very strong balance sheet, NextEra Energy Inc. (NYSE: NEE) is poised for a solid second half of 2016. It is a leading clean energy company with consolidated revenues of over $17.0 billion, and approximately 44,900 megawatts of generating capacity, which includes megawatts associated with noncontrolling interests related to NextEra Energy Partners.
Headquartered in Juno Beach, Florida, NextEra Energy’s principal subsidiaries are Florida Power & Light, which serves approximately 4.8 million customer accounts in Florida and is one of the largest rate-regulated electric utilities in the United States, and NextEra Energy Resources, which, together with its affiliated entities, is the world’s largest generator of renewable energy from the wind and sun.
NextEra is also one of the Merrill Lynch top picks for the third quarter. The analysts feel the company may very well be one of the top total return plays out of the large cap regulated space in the sector. However, it was just announced that the company’s proposed takeover of Hawaiian Electric Industries was rejected by regulatory authorities, after nearly two years since its initial filing. The rejection has led the parties to call off the merger.
Shareholders receive a 2.71% dividend. The Merrill Lynch price target for the stock is $144, and the Wall Street consensus target is $133.94. The stock closed Monday at $128.25.
This is another top company that the analyst likes before the earnings release. Black Hills Corp. (NYSE: BKH) operates as a diversified energy company in the United States. Its Electric Utilities segment generates, transmits and distributes electricity to approximately 207,200 electric customers in South Dakota, Wyoming, Colorado and Montana, and it distributes natural gas to approximately 44,200 gas utility customers in Cheyenne, Wyoming. This segment owns 841 megawatts of generation capacity and 8,703 miles of electric transmission and distribution lines.
The Gas Utilities segment distributes natural gas to approximately 547,300 natural gas utility customers in Colorado, Nebraska, Iowa and Kansas. This segment owns 645 miles of intrastate gas transmission pipelines and 19,494 miles of gas distribution mains and service lines.
The company’s Power Generation segment produces electric power and sells the electric capacity and energy primarily to its utilities under long-term contracts, and the Coal Mining segment produces coal at its coal mine located near Gillette, Wyoming, and sells the coal to electric generation facilities.