Millions of Americans recently suffered through, or are continuing to suffer from a deadly heat wave. Cynically, this framework is a positive for utility stocks. I don’t know about you but when the sun started to bake my neck of the woods, I had to run the air conditioner all night to be able to sleep.
I’m sure I’m not unique in this matter – not even close. What’s more, we could suffer the same heat or worse over the next several years. According to The Washington Post, Americans and other global citizens just experienced the ravages of climate change. Scientists are now warning people in their local communities to expect more heat waves in the future.
Now, even if you didn’t believe in climate change, it really doesn’t matter: you’re going to want to consider utility stocks anyways. That’s because advanced technologies like artificial intelligence are putting a major strain on data center infrastructures. Tech isn’t free, especially in the energy consumption context.
It stinks on many levels but that’s our reality. With that in mind, below are utility stocks to consider.
Duke Energy (DUK)
Based in Charlotte, North Carolina, Duke Energy (NYSE:DUK) is one of the powerhouses in the regulated electric space. Together with its subsidiaries, Duke operates two main business units, one covering electric utilities and the other focused on gas. One of the company’s key advantages is geography. Covering the Carolinas, Florida and the Midwest, Duke is positioned where many young people are moving to.
Stated differently, the money is coming to Duke rather than the other way around. That’s a type of relevance that’s difficult to ignore. However, it must be stated that Duke encountered some financial choppiness. In the past four quarters, it posted an average earnings per share of $1.45. This missed the average consensus view of $1.46.
Still, DUK stock trades at 18.85X trailing-year earnings. That’s below the metric posted between the first quarter of 2023 to Q1 2024, which was 19.54X. Also, the sales premium of 2.76X is modestly elevated from the prior year’s 2.49X.
Significantly, analysts believe EPS may rise 7.37% to $5.97 this year. Also, sales could bump up 3.4% to $30.05 billion. It’s one of the utility stocks to buy.
American Electric Power (AEP)
Another giant in the regulated electric ecosystem, American Electric Power (NASDAQ:AEP) engages in the generation, transmission and distribution of electricity for sale to retail and wholesale customers. Per its public profile, American Electric generates its power from a variety of sources, including coal, natural gas and nuclear. However, it also leverages the power of renewable energy infrastructure.
Financially, American Electric performs well. It only missed its bottom-line target in Q4 2023. Other than that, it exceeded expectations. In the past four quarters, AEP posted an average EPS of $1.35. This figure edged out the consensus view of $1.33. Overall, the average earnings surprise landed at a hair above 1%.
Notably, AEP stock appears to be offered at a relative discount. Currently, shares trade hands at 16.94X trailing-year earnings. That’s below the prior year’s average metric of 20.09X. Also, the price-to-sales ratio of 2.46X is a modest premium over the prior year’s 2.22X.
For fiscal 2024, experts believe EPS may rise 7% to $5.61. Sales could see a lift of 6.7% to $20.26 billion. It’s another solid idea for utility stocks to buy.
Atmos Energy (ATO)
Operating out of Dallas, Texas, Atmos Energy (NYSE:ATO) is one of the (relatively) smaller players in the regulated utilities ecosystem. With its subsidiaries, Atmos engages in natural gas distribution. It also offers a pipeline and storage business. According to its profile, the company provides gas to approximately 3.3 million customers, spanning everything from residential, commercial and government categories.
On a financial note, Atmos incurred a modest miss against its bottom-line target for Q2 2023. That said, it went on a recovery run during the next three quarters. Overall, in the past year, the utility posted an average EPS of $1.67. This figure beat out the consensus view of $1.59, translating to an earnings surprise of 4.18%.
As with the other utility stocks, the valuation is intriguing. Right now, ATO stock trades at 18.24X trailing-year earnings. However, between Q1 2023 to one year later, the metric averaged 19.33X. The sales multiple stand at 4.44X, which is higher than the prior year’s average of 3.76X.
Nevertheless, analysts believe that fiscal 2024 revenue could hit $4.65 billion. That’s up 8.8% from last year. Also, earnings could reach $6.77 per share, implying an expansion of nearly 11%.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
