Utilities have provided an oasis of stability inside a volatile stock market in recent months. The S&P 500 Utilities index has climbed 2.3% so far this year, while the overall S&P 500 has dropped 14%.
Wells Fargo analysts have offered commentary on four of their overweight utility names who are in the midst of holding analyst days.
NextEra Energy (Analyst Day: June 14)
“What a difference a year makes” for NextEra (NEE), the analysts wrote in a commentary. “In 2020 and 2021, the renewable pacesetter was flying high, as shares benefited from the risk-on trade in the market.”
But so far this year, the stock has underperformed the S&P 500 Utilities index by about 20%. “We think that is largely related to macro conditions but not without a few other hiccups,” the analysts said.
“We think the analyst day is about regaining control of the narrative. We expect NEE to highlight the strong long-term trend toward decarbonization and electrification, which looks even more compelling under a backdrop of high fossil fuel prices.”
PPL (Analyst Day: June 9)
“We are looking for a 5-7% annualized earnings per share growth,” the analysts said of PPL (PPL). “We think the growth will be driven by a combination of modest rate growth and share repurchases.”
Further, “if our numbers are right we think shares could bridge much of the 8%-10% price-earnings multiple gap versus peers,” the analysts said. “PPL will have one of the stronger balance sheets in the sector.”
Entergy (Analyst Day: June 15)
“We continue to view Entergy (ETR) as an under-the-radar name,” the analysts said. “At some point we believe shares will gain traction with investors, and we view the analyst day as an opportunity to attract attention.”
One positive factor is that “on a P-E multiple basis, ETR continues to screen cheap, trading at a 10% discount to peers,” the analysts said.
“We increase our forward price target to $140 a share from $135 on higher peer group multiples.” Entergy recently traded at $117.70.
PG&E (Analyst Day: June 10)
“We do not expect meaningful updates to PG&E’s (PCG) earnings per share and capital expenditure outlook,” the analysts said. “Rather, we think the focus of the analyst day will be on the company's ongoing wildfire mitigation efforts, including the proposal to underground 10,000 miles of distribution lines in high risk wildfire areas.”
Chief Executive Patti Poppe and her colleagues are trying to “instill greater confidence in the company's ability to materially reduce wildfire risk,” the analysts said. “After all, the Fire Victims Trust still owns 378 million shares, about 20% of PCG.”
