April 12, 2023

12 Cheap Utility Stocks to Buy According to Analysts

by Hamna Asim
finance.yahoo.com

In this article, we discuss 12 cheap utility stocks to buy according to analysts. If you want to see more stocks in this selection, check out 5 Cheap Utility Stocks to Buy According to Analysts.

The electric power industry experienced a year full of challenges and opportunities in 2022. Despite the pandemic recovery, electricity sales in the US rose by 3.6% during the first eight months of the year compared to the previous year. However, the sector also faced increased costs due to natural gas prices more than doubling as a result of global shortages that were worsened by Russia's invasion of Ukraine. Additionally, extreme climate events such as droughts, hurricanes, heat waves, and wildfires continued to test the resilience of regional grids. As a response to these challenges, the industry and policymakers worked on improving reserves, deploying energy storage and microgrids, strengthening infrastructure, and enhancing flexible load options.

It is expected that in 2023, the positive advancements seen in the electric power sector will continue to progress. However, the task of providing secure, reliable, affordable, and clean electricity could become more difficult due to various challenges. Elevated electricity prices may persist due to inflation, high fuel costs, and supply chain disruptions. Additionally, managing extreme weather, cybersecurity risks, and the growth of variable renewables and distributed energy resources may require innovative solutions to ensure grid reliability. Despite these challenges, new technologies and supportive policies could create opportunities in 2023 and aid the industry in achieving its objectives.

Utilities are facing mounting pressure due to increasing expenses and rates, as well as growing regulatory scrutiny, changing customer expectations, and investor demands for consistent returns. To address these challenges, a technology-forward approach, expanding the use of operational technology, and digitizing the back office can benefit both the customer and the utility financially, while also creating more efficient operations.

Story continuesAlthough distributed generation offers benefits such as energy independence for end customers, its widespread emergence on a distribution grid can create issues for electric utilities. Furthermore, the move towards a clean energy future adds pressure on utilities to find creative solutions for production and transmission. Full electrification will require a multi-pronged approach, including government funding, leveraging hydrogen and renewable natural gas, and utilizing a portfolio approach with multiple technologies to keep costs down and achieve net-zero goals. Similarly, the focus on decarbonization to address climate change and worsening air quality is driving acceleration in transportation and building electrification, investments in renewable energy, and new energy market participation.

To benefit from the advancements and opportunities in the utilities sector, some of the best stocks to invest in include NextEra Energy, Inc. (NYSE:NEE), Consolidated Edison, Inc. (NYSE:ED), and The Southern Company (NYSE:SO). However, we discuss the best cheap utility stocks to invest in this article. Investors can also check out 16 Best Utility Stocks to Buy Now, 12 Most Profitable Utility Stocks, and 11 High Growth Utility Stocks to Buy.

Our Methodology

To find cheap utility stocks according to analysts, we used screeners to identify utility stocks whose average analysts price estimates are significantly higher than their current stock price. That means these stocks are cheap when compared to their true potential, according to Wall Street analysts. With each stock we have mentioned its upside potential from its current levels based on its average analyst price target. All these stocks have PE ratios under 15.

“U.S. electric utility Exelon (NASDAQ:EXC) was also a top contributor. Exelon is a pure transmission and distribution regulated utility business serving millions of electric and gas customers across Delaware, Illinois, Maryland, New Jersey, Pennsylvania and the District of Columbia. Shares outperformed along with the utilities sector; Exelon is also starting to be viewed as a premium name after its recently completed spin-off of power generation business Constellation Energy (NASDAQ: CEG).�

11. Duke Energy Corporation (NYSE: DUK)Number of Hedge Fund Holders: 33Average Upside Potential Based on Analyst Ratings: 10.01%

Average Price Target: $107.50

Duke Energy Corporation (NYSE: DUK) is an energy company in the United States that operates through two segments, Electric Utilities and Infrastructure and Gas Utilities and Infrastructure. On March 8, Dke Energy Corporation (NYSE: DUK) announced that its largest solar power plant, the Pisgah Ridge Solar project, with a capacity of 250 MW, has begun operations in Navarro County, Texas. Duke Energy Corporation (NYSE: DUK) has a significant presence in Texas, with almost 1,500 MW of wind power, 750 MW of solar power, and a 36-MW battery storage facility currently in operation. It is one of the best cheap utility stocks to invest in.

According to Insider Monkey’s fourth quarter database, 33 hedge funds were long Duke Energy Corporation (NYSE: DUK), and E Shaw;elm:context_link;itc:0" class="link ">D E Shaw is a prominent stakeholder of the company, with 729,450 shares worth $75 million.

10. Eversource Energy (NYSE:ES)Number of Hedge Fund Holders: 26

Average Upside Potential Based on Analyst Ratings: 10.24%

Average Price Target: $88.54

Eversource Energy (NYSE:ES), a public utility holding company, specializes in the energy delivery business. The company operates through Electric Distribution, Electric Transmission, Natural Gas Distribution, and Water Distribution segments. It is one of the best cheap utility stocks to invest in according to analysts. Eversource Energy (NYSE:ES)’s revenue in the fourth quarter of 2022 came in at $3.02 billion, outperforming Wall Street estimates by $780 million.

On March 30, Argus maintained a Buy rating on Eversource Energy (NYSE:ES) but trimmed the price target from $95 to $85 due to recent trends in the sector. According to the firm’s research note, the company's management is projecting long-term EPS growth in the upper half of its 5%-7% guidance range, with 2022 serving as the base year. Argus believes that Eversource Energy (NYSE:ES) has strong fundamentals, efficient cost controls, and an expanding transmission-line construction program. Additionally, the company is committed to developing EV charging stations and achieving carbo-neutrality by 2030.

According to Insider Monkey’s fourth quarter database, 26 hedge funds were long Eversource Energy (NYSE:ES), compared to 30 funds in the earlier quarter. GLG Partners held the largest stake in the company, comprising nearly 1.8 million shares worth $150.8 million.

9. PG&E Corporation (NYSE: PCG)Number of Hedge Fund Holders: 52

Average Upside Potential Based on Analyst Ratings: 10.27%

Average Price Target: $18.70

PG&E Corporation (NYSE: PCG) sells and distributes electricity and natural gas to customers in central and northern California. The company generates electricity from various sources, such as nuclear, hydroelectric, fossil fuels, fuel cells, and photovoltaic systems. PG&E Corporation (NYSE: PCG)’s transmission lines have been held responsible for some of the major fire in California in recent times, and the company announced on March 28 that it has already implemented measures that have decreased its wildfire risk by over 90%. To further prevent wildfires, PG&E intends to invest $18 billion in wildfire prevention initiatives through 2025.

According to a research note by UBS analyst Gregg Orrill dated January 3, PG&E Corporation (NYSE: PCG) has been downgraded from Buy to Neutral with a price target of $17. The analyst acknowledged the company's strengths, such as its industry-leading 10% EPS growth over the next four years, improved response to wildfire situations, and a competent management team. However, the analyst also recognized some weaknesses such as the concentration of ownership by Fire Victims Trust, which could pose a challenge, and th delay in recovering wildfire mitigation spending.

According to Insider Monkey’s fourth quarter database, 52 hedge funds were bullish on PG&E Corporation (NYSE: PCG), compared to 46 funds in the prior quarter. Dan Loeb’s Third Point is the largest stakeholder of the company, with 59 million shares worth $960.5 million.

ClearBridge Global Infrastructure Value Strategy made the following comment about PG&E Corporation (NYSE: PCG) in its Q4 2022 investor letter:

“Turning to the U.S. and Canada, U.S. electric utility PG&E Corporation (NYSE: PCG) and U.S. water company American Water Works (AWK) also made strong contributions. PG&E is a regulated utility operating in central and northern California that serves 5.3 million electricity customers and 4.4 million gas customers in 47 of the state’s 58 counties. PG&E outperformed given several positive catalysts: it was included in the S&P 500 Index, the Fire Victim’s Trust sold some of its stake in the company, easing a market overhang, and the company displayed evidence of its operational improvements, with no major fires seen so far this fire season.�

8. NiSource Inc. (NYSE:NI)Number of Hedge Fund Holders: 34Average Upside Potential Based on Analyst Ratings: 10.87%

Average Price Target: $31.00

NiSource Inc. (NYSE:NI) is a holding company that provides energy services in the United States. The company operates as a regulated utility company that offers natural gas and electric services. NiSource has two main operating segments – Gas Distribution Operations and Electric Operations. On March 14, NiSource Inc. (NYSE:NI) declared a $0.25 per share quarterly dividend, in line with previous. The dividend is payable on May 19, to shareholders of record on April 28. It is one of the best cheap utility stocks to invest in.

Credit Suisse analyst Nicholas Campanella upgraded NiSource Inc. (NYSE:NI) to Outperform from Neutral with a $27 price target on November 9.

According to Insider Monkey’s fourth quarter database, 34 hedge funds were bullish on NiSource Inc. (NYSE:NI), compared to 32 funds in the prior quarter. Stuart J. Zimmer’s Zimmer Partners is the largest stakeholder of the company, with 4.7 million shares worth $130 million.

7. Sempra Energy (NYSE:SRE)Number of Hedge Fund Holders: 25

Average Upside Potential Based on Analyst Ratings: 11.21%

Average Price Target: $170.08

Sempra Energy (NYSE:SRE) is an energy infrastructure company in the United States and internationally. It operates through four segments – San Diego Gas & Electric Company, Southern California Gas Company, Sempra Texas Utilities, and Sempra Infrastructure. On March 20, Sempra Energy (NYSE:SRE) declared a $1.19 per share quarterly dividend, a 3.9% increase from its prior dividend of $1.15. The dividend is payable on April 15, to shareholders of record on March 22. It is one of the best cheap utility stocks to watch.

On March 28, BofA analyst Julien Dumoulin-Smith maintained a Buy rating on Sempra Energy (NYSE:SRE) but lowered the firm's price target on the shares to $165 from $173. The analyst updated the firm's earnings estimates for liquefied natural gas and the valuation of LNG DevCo, as well as its multiples. Despite the reduction in price target, Dumoulin-Smith is optimistic and stated that the Port Arthur Phase 1 Final Investment Decision (FID) is a positive sign for Sempra Energy and sets the stage for further FIDs in LNG projects.

According to Insider Monkey’s fourth quarter database, 25 hedge funds were bullish on Sempra Energy (NYSE:SRE), compared to 27 funds in the prior quarter. Phill Gross and Robert Atchinson’s Adage Capital Management is the largest stakeholder of the company, with 574,685 shares worth $88.8 million.

Here is what ClearBridge Investments Large Cap Value Strategy has to say about Sempra (NYSE:SRE) in its Q1 2022 investor letter:

“Energy shortages in Europe were only intensified by the invasion. The conflict and economic sanctions against Russia have brought to the forefront EU dependence on Russian oil and natural gas. As Germany and its EU neighbors look to diversify their natural gas suppliers, some U.S. companies stand to benefit. Within the portfolio, Sempra Energy (NYSE:SRE) is well-positioned. Sempra’s previously underappreciated portfolio of infrastructure assets, with existing as well as prospective liquified natural gas (LNG) facilities, should benefit from renewed interest in U.S.-sourced LNG. The U.S. commitment to increase LNG exports to Europe over the coming years should create a favorable long-term demand environment and hopefully regulatory framework benefiting Sempra along with other natural gas and LNG suppliers. Sempra’s core utilities operations in California and Texas continue to generate solid mid- to high-single-digit earnings growth, and it enjoys additional growth opportunities from renewable natural gas (RNG), hydrogen and other renewable sources of energy.�

6. Atmos Energy Corporation (NYSE:ATO)

Number of Hedge Fund Holders: 22Average Upside Potential Based on Analyst Ratings: 11.43%

Average Price Target: $125.40

Atmos Energy Corporation (NYSE:ATO) engages in the regulated natural gas distribution, pipeline, and storage businesses in the United States. On March 31, Atmos Energy Corporation (NYSE:ATO) revealed in a filing with the Securities and Exchange Commission a prospectus outlining plans for a potential public offering aimed at generating up to $5 billion. According to Atmos, the plan involves the sale of both debt securities and common stock in order to raise the targeted amount.

On February 9, Gabriel Moreen, an analyst at Mizuho, increased the company's price target for Atmos Energy Corporation (NYSE:ATO) from $128 to $137 and maintained a Buy rating on the shares. The analyst noted that the company appears to be less affected by the difficulties currently confronting many utilities.

According to Insider Monkey’s fourth quarter database, 22 hedge funds were bullish on Atmos Energy Corporation (NYSE:ATO), compared to 23 funds in the earlier quarter. Rajiv Jain’s GQG Partners is the largest stakeholder of the company, with 2.9 million shares worth $326.7 million.

In addition to NextEra Energy, Inc. (NYSE:NEE), Consolidated Edison, Inc. (NYSE:ED), and The Southern Company (NYSE:SO), Atmos Energy Corporation (NYSE:ATO) is one of the top utility stocks to watch.

Here is what Aristotle Capital Management Value Equity has to say about Atmos Energy Corporation (NYSE:ATO) in its Q1 2022 investor letter:

“Headquartered in Dallas, Atmos Energy is the largest fully regulated natural gas-only utility in the U.S. It serves over three million distribution customers across eight states, primarily in the South. Approximately 70% profits revenue comes from Texas, where it owns one of the largest natural gas pipeline systems in the state.High-Quality Business

Some of the quality characteristics we have identified for Atmos Energy include:

-Strong balance sheet and financial strength, perhaps most visible during 2021’s winter storm Uri when millions of Texans lost power. The significant spikes in natural gas prices stressed distributors, but Atmos handled over $2 billion of incremental costs with little long-term impact;

-Experienced and shareholder-friendly management team, as demonstrated by 38 consecutive years of dividend increases; and

-Attractive demographics and favorable regulatory environments in the states where it operates.

Attractive Valuation

Given our estimates of higher normalized earnings and dividend payments, we believe shares of Atmos Energy are trading at a discount relative to our estimate of their intrinsic value.

Compelling Catalysts

Catalysts we have identified for Atmos Energy, which we believe will cause its stock price to appreciate over our three- to five-year investment horizon, include:

-Old pipes and aging infrastructure, coupled with a growing population, have created a large backlog of safety and maintenance projects – completion of which should drive earnings growth and steady dividend increases. Updates should both increase reliability as well as the value of Atmos Energy’s assets, enhancing profit levels permitted by regulators;

-Well positioned to source low-cost natural gas from prolific basins in Texas to its distribution network, helping to keep customer prices down and economically favorable relative to other sources of energy; and

-Advantageous regulatory environment should continue to support rate adjustments so that revenues are earned on capital projects within six to 12 months.�

5. DTE Energy Company (NYSE: DTE)
Number of Hedge Fund Holders: 34

Average Upside Potential Based on Analyst Ratings: 13.66%

Average Price Target: $127.50

DTE Energy Company (NYSE: DTE) engages in the utility operations, operating through Electric, Gas, DTE Vantage, and Energy Trading segments. It is one of the best cheap utility stocks to invest in. On February 2, DTE Energy Company (NYSE: DTE) declared a $0.9525 per share quarterly dividend, in line with previous. The dividend is payable on April 15, to shareholders of record on March 20.

On December 14, Neil Kalton, an analyst at Wells Fargo, increased the firm’s price target for DTE Energy Company (NYSE: DTE) from $128 to $138, to account for the rise in peer group multiples since his last assessment. Kalton maintained an Overweight rating on the shares, but his sector outlook for 2023 was less optimistic, though not negative.

According to Insider Monkey’s fourth quarter database, 34 hedge funds were bullish on DTE Energy Company (NYSE: DTE), compared to 30 funds in the prior quarter. Ken Griffin’s Citadel Investment Group held the biggest stakeholder of the company, with 1.7 million shares worth approximately $202 million.

4. Enel Chile S.A. (NYSE:ENIC)

Number of Hedge Fund Holders: 7

Average Upside Potential Based on Analyst Ratings: 14.81%

Average Price Target: $2.68

Enel Chile S.A. (NYSE:ENIC) provides electricity services, including the production, transmission, and distribution of electricity in Chile. Enel Chile S.A. (NYSE:ENIC) generates electricity from various sources, including hydroelectric, thermal, wind, solar, and geothermal power plants. It is one of the best cheap utility stocks to buy according to analysts. On March 1, Enel Chile S.A. (NYSE:ENIC) reported an adjusted EBITDA of $932 million.

According to Insider Monkey’s fourth quarter database, 7 hedge funds held stakes worth $13.75 million in Enel Chile S.A. (NYSE:ENIC), compared to 5 funds in the prior quarter worth $7.6 million. Cliff Asness’ AQR Capital Management is the biggest stakeholder of the company, with 2.28 million shares worth over $5 million.

3. Clearway Energy, Inc. (NYSE:CWEN)

Number of Hedge Fund Holders: 27

Average Upside Potential Based on Analyst Ratings: 17.04%

Average Price Target: $37.86

Clearway Energy, Inc. (NYSE:CWEN) operates in the renewable energy business in the United States. The company operates through Conventional, Renewables, and Thermal segments. On February 16, Clearway Energy, Inc. (NYSE:CWEN) declared a $0.3745 per share quarterly dividend, a 2% increase from its prior dividend of $0.3672. The dividend was paid to shareholders on March 15.

On January 10, Mark Jarvi, an analyst at CIBC, upgraded Clearway Energy, Inc. (NYSE:CWEN) from Neutral to Outperform. He noted that there was a significant variance in individual performance within the Power & Utility sector in 2022, which was a challenging year. The analyst believes that the same factors will drive outperformance this year, particularly given the uncertain macro and equity market outlook in 2023. In this context, the analyst prefers companies that can balance defensive underpinnings with measurable growth.

According to Insider Monkey’s fourth quarter database, 27 hedge funds were long Clearway Energy, Inc. (NYSE:CWEN), compared to 25 funds in the earlier quarter. Jos Shaver’s Electron Capital Partners is the largest stakeholder of the company, with 846,571 shares worth nearly $27 million.

Here is what ClearBridge Investments SMID Cap Growth Strategy has to say about Clearway Energy, Inc. (NYSE:CWEN) in its Q4 2021 investor letter:

“Clearway Energy primarily owns and operates contracted renewable generation assets. It also owns and operates conventional generation and thermal infrastructure assets. Clearway Energy’s share price continued to benefit from the completed sale of its thermal assets, which was above expectations, generating USD$1.3 billion in incremental proceeds. Additionally, there was optimism surrounding a stimulus bill passthrough which contains renewables subsidies.�

2. NRG Energy, Inc. (NYSE:NRG)

Number of Hedge Fund Holders: 39

Average Upside Potential Based on Analyst Ratings: 17.38%

Average Price Target: $38.29

NRG Energy, Inc. (NYSE:NRG) is an integrated power company in the United States. It operates through Texas, East, and West segments. On March 2, NRG Energy, Inc. (NYSE:NRG) set the price for its offering of $740 million, 7.000% senior secured first lien notes due 2033 at 98.749% of their face value. In addition, the company has priced 650,000 shares of 10.25% series A fixed-rate reset cumulative redeemable perpetual preferred stock, with a $1,000 liquidation preference per share. The notes will reach maturity on March 15, 2033. NRG Energy, Inc. (NYSE:NRG) plans to use the net proceeds from these offerings to partially finance its previously announced acquisition of Vivint Smart Home.

On March 20, Julien Dumoulin-Smith, an analyst at Bank of America, upgraded NRG Energy, Inc. (NYSE:NRG) from Neutral to Buy with a price target of $36, up from $35. The company’s stock recently fell to a low not seen since November 2020 and is currently trading lower than it did immediately after the acquisition of Vivint. According to the firm, investors have failed to recognize the earnings potential of NRG Energy, Inc. (NYSE:NRG)’s nuclear and Texas-based retail business. The firm predicts that this business will generate approximately $1.4 billion in adjusted EBITDA by 2025 and noted that it is similar to peer Vistra’s “Vision� business, which is also a nuclear, gas, and retail powerhouse.

According to Insider Monkey’s fourth quarter database, 39 hedge funds were long NRG Energy, Inc. (NYSE:NRG), up from 27 funds in the earlier quarter. Richard S. Pzena’s Pzena Investment Management is the largest stakeholder of the company, with 8.35 million shares worth $265.7 million.

Legacy Ridge Capital made the following comment about NRG Energy, Inc. (NYSE:NRG) in its Q4 2022 investor letter:

“NRG Energy, Inc. (NYSE:NRG) was covered in the 2019 letter with VST. We sold the shares as COVID induced volatility presented better risk/reward opportunities, but never subsequently repurchased shares—as we did with VST. Not only do we think VST is a better value, but the management team at NRG appears to have gone astray. Despite coming to his position during an activist campaign by Elliott Management in 2017, when the prior empire-building CEO was shown the door, the replacement CEO has seemingly embarked on the same failed strategy. In early December they announced the purchase of Vivint Smart Home, a smart home platform company, for $2.8 billion. The transaction diversifies NRG’s business, increases leverage, dramatically reduces intermediate-term shareholder capital returns, and most importantly, is the opposite of what management told us they were going to do when they assumed the role in 2017. The stock fell 15% on the day of the announcement and is down another 5% since then, and now 10% lower than when we first wrote about it. We like the generation business at NRG and the valuation is almost back to interesting, but we’d probably have to see turnover in the C-suite and a refreshed corporate strategy to reignite our enthusiasm.�

1. NextEra Energy Partners, LP (NYSE:NEP)

Number of Hedge Fund Holders: 30

Average Upside Potential Based on Analyst Ratings: 44.86%

Average Price Target: $84.31

NextEra Energy Partners, LP (NYSE:NEP) purchases, possesses, and handles clean energy projects under contract in the United States. Its portfolio comprises contracted renewable energy generation assets, including wind, solar, and battery storage projects, as well as contracted natural gas pipeline assets. The company was established in 2014 and is headquartered in Juno Beach, Florida. NextEra Energy Partners, LP (NYSE:NEP) is one of the top cheap utility stocks to buy according to analysts.

On January 26, Oppenheimer’s analyst, Colin Rusch, increased the company’s price target on NextEra Energy Partners, LP (NYSE:NEP) from $88 to $94 and maintained an Outperform rating on the shares. The firm reported Q4 results below consensus estimates due to reduced wind production YoY and increased PTC allocations. However, it affirmed the run-rate expectations for 2023 and extended its 12%-15% DPS CAGR target until 2026. Oppenheimer believes that NextEra Energy Partners, LP (NYSE:NEP) is well-placed, given the company’s efficient management of the cost of capital.

According to Insider Monkey’s fourth quarter database, 30 hedge funds were bullish on NextEra Energy Partners, LP (NYSE:NEP), compared to 21 funds in the prior quarter.

ClearBridge Investments mentioned NextEra Energy Partners, LP (NYSE:NEP) in its first quarter 2021 investor letter:

“NEP is a growth-oriented contracted renewables company formed by its sponsor and general partner NextEra Energy (NEE) to own, operate and acquire contracted renewable energy generation assets located in North America. Growth comes from the dropdown of assets from NEE and we anticipate this should allow NEP to provide 12%–15% dividend growth to 2024. Shares were higher amid an improved renewables project backlog following fourth-quarter results. Continued positive green policy news following the Democrats’ runoff election wins also raised expectations of green fiscal stimulus.�

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