It’s mid-summer and the utility sector is coming up short on estimated gains. Across the country, inflation, interest rates, extreme weather, cybersecurity threats, and an aging system are behind disappointing second quarter results. Experts think it’s unlikely utilities stocks will finish 2023 with a performance like 2022. Last year, they outperformed the market by 21 percentage points. At the start of the year, interest rate policies were uncertain and energy prices were high.
- Chesapeake Utilities’ second quarter earnings and revenue missed estimates but revealed a strong correlation between near-term stock movements and trends in earnings estimate revisions.
- AES missed the mark as well with higher costs and lower sales. According to Refinitiv, the company reported as adjusted profit of 21 cents per share, which was estimated at 24 cents.
- Dominion Energy came in below forecast, experiencing lower demand for its second quarter.
The challenges to overcome are clear but it will take time and money. Utility companies are working toward cost management and energy efficiency programs in hopes of creating new rates, new demand, new customers and stable earnings. Utilities need investments to upgrade and expand the grid and their portfolios.
According to Deloitte 2023 Power and Utilities Industry Outlook, utilities that adapt to the following trends can boosts their market position.
- Modernize by preparing for the next wave of advance metering infrastructure.
- ESG Reporting will continue to gain momentum.
- Grid flexibility is a must. Battery storage deployments are set to accelerate despite supply chain problems.
- Decarbonization will enlist the help of hydrogen power generation.
- Transportation electrification is growing at a rapid pace and utilities will have meet an increased demand.
Is this a glass half empty or a glass half full scenario? Will things turn around before the end of the year? Several utility companies are expecting better numbers next quarter.
- Sempra Energy’s profit beat estimates as cost fell. Lower costs and higher sales at its California units allowed the company to have a good second quarter.
- Exelon Corporation saw a decline but benefited from the tax reforms, energy efficiency programs and cost-saving initiatives. Exelon has an Earnings ESP of +0.12% and a Zacks Rank #3.
- Consolidated Edison saw a decline, but the utility has a Zacks Rank #2 and an Earnings ESP of +1.4 percent. In other words, they have a good chance of coming out ahead at their next earnings announcement.
- Public Service Enterprise Group saw a decline but has an Earnings ESP of +1.94 percent and a Zacks Rank #2.
- Atmos Energy is forecast to see an increase next quarter and has an Earnings ESP of +6.88 percent and a Zacks Rank #2.
If the risks of last quarter ease, things are expected to level out. With temperatures rising and demand increasing will investments pick up or will risks, unexpected events and inflation continue to stall progress?