Utilities Prep for Conversion to Clean Energy: 3 Stocks in View

Even though the toxic carbon dioxide emissions alarmingly skyrocketed in the last few decades, one satisfactory news is that owing to the pandemic-induced lockdown, the same fell 6.4% or 2.3 billion tonnes in 2020, globally. Most environmentally-friendly contribution came in from the United States, which witnessed a nearly 13% decline. However, the pollution levels are picking up the pace again as the economic operations reopened.

To this end. a number of utilities in the United States decided voluntarily to become carbon neutral over the next three decades. The companies have full support from the new Joe Biden government, which aims to produce carbon-free electricity by 2035 and achieve net-zero emissions 15 years later. Consistent investments in research and development, and the utilization of new technology will not only support the usage of clean renewable energy but also make the energy production cheaper and more affordable.

Per the U.S. Energy Information Administration (EIA), renewable energy generation is likely to inch up to 21% in 2021 and 22% in 2022 from 20% in 2020. It also expects electricity generators, developers and power plant owners to add 39.7 gigawatts (GW) of new electricity generating capacity in 2021, of which the largest share of 39% will come from solar followed by wind pitching in with 31%. Moreover, large battery storage projects are increasing the reliability of renewable assets. 4.3 GW of such capacity additions is likely to start in 2021.

Key Picks

We picked a few stocks that have performed better than the Zacks Utility-Electric Power industry so far this year. These stocks carry a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. We added some more criteria for the selection of utilities from our proprietary Zacks Stock Screener.

Price Performance

Shares of Duke Energy Corporation DUK, Dominion Energy, Inc. D and Southern Company SO have gained 6.5%, 7.4% and 6.5%, respectively, outperforming the industry’s rise of 2.9% in the past three months.

Duke Energy: The company primarily operates through three business segments, namely Electric Utilities and Infrastructure, Gas Utilities and Infrastructure, and Commercial Renewables. Of this, 91% of the total revenues in 2020 came in from Electric Utilities and Infrastructure. Notably, the company already lowered its carbon emissions in 2020 by more than 40% since its 2005 baseline and now aims to reach its target of net-zero carbon emissions from electric generation by 2050.

The earnings estimate for 2021 and 2022 is pegged at $5.21 and $5.47, respectively, reflecting year-over-year growth of 1.76% and 4.99%, respectively. The current dividend yield of the utility stands at 3.95% and in the long term (three to five years), its earnings are expected to grow 5.23%.

Dominion Energy: The utility is a major energy company engaged in regulated and non-regulated electricity distribution, generation and transmission businesses. In addition, it sells electricity at wholesale prices to rural electric cooperatives, municipalities and through wholesale electricity markets. It aims to attain net-zero carbon and methane emissions from its electric generation and natural gas infrastructure by 2050 from the 2005 levels. Also, it targets an emission cut of 70-80% within 2035 from its 2005 baseline and also expects 95% of its fuel use to have zero emission.

The earnings estimate for 2021 and 2022 is pegged at $3.85 and $4.10, respectively, reflecting year-over-year growth of 8.76% and 6.49% each. The current dividend yield of the utility stands at 3.30% and in the long-term (three to five years), its earnings are expected to grow 6.72%.

Southern Company: The company deals with the generation, transmission and distribution of electricity. It serves approximately nine million customers and boasts a capacity generation of 46,000 megawatts and around 200,000 miles of electric transmission and distribution lines with more than 80,000 miles of natural gas pipelines. In 2020, it reduced greenhouse gas (GHG) emissions by 52% from its 2007 levels, exceeding its 2030 reduction goal of 50%. Its long-term aim is to achieve net zero GHG emissions by 2050.

The earnings estimate for 2021 and 2022 stands at $3.31 and $3.55, respectively, reflecting year-over-year growth of 1.85% and 7.45% each. The current dividend yield of the utility stands at 4.07% and in the long-term (three to five years), its earnings growth rate is projected at 5.03%.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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