Weather Chills Utilities' Momentum

5/9/2016


The S&P 500 Utility Sector Index has streaked higher in 2016, producing a 15% total return, tops among the index's 10 sectors. But earnings season may have given the utility sector a cold; it has lagged the broader index since March 31.

Of the 83% of S&P 500 utilities that had reported first-quarter earnings as of May 4, just 50% topped March-quarter profit estimates — a lower rate than any other sector. The utility sector is projected to post 5% lower per-share profits, roughly in line with the broader index.

Earnings season has already wrapped up for our Top 15 Utilities Portfolio. Our utilities averaged 4% lower per-share profits for the March quarter, with 64% of them surpassing consensus profit estimates.

Our electric utilities consistently posted solid profit growth that topped expectations. Results were more mixed for gas and diversified utilities. The strongest results came from utilities that reported some combination of customer growth, rate hikes, and lower operating costs.

With few exceptions, our utilities said unseasonably warm weather hurt demand for their services. Star Gas Partners ($9; SGU) and UGI ($41; UGI) noted that temperatures in some of their geographic markets were about 25% warmer on average than in the year-ago quarter.

Many of our utilities reaffirmed their 2016 profit outlooks, suggesting recent challenges should be confined to the March quarter. EQT Midstream Partners ($77; EQM) raised its 2016 view, noting capacity growth and higher transmission fees. But Allete ($58; ALE) cautioned that earnings per share could fall in the bottom half of its prior range, while Portland General Electric ($41; POR) and UGI cut their profit guidance.

Hoping to quell investor disappointment, UGI raised its quarterly dividend 4% to $0.2375, and Portland General raised its quarterly dividend 7% to $0.32. Spectra Energy Partners ($48; SEP) also increased its distribution for the 34th consecutive quarter.

Separately, Laclede Group changed its name to Spire and now trades under the ticker symbol SR. Spire also agreed to acquire EnergySouth, which runs gas utilities in Alabama and Mississippi, for $344 million.

TOP 15 UTILITIES PORTFOLIO
March-Quarter
-- Earnings Per Share --
Fiscal 2016
-- Earnings Per Share --
Company (Price; Ticker)
Actual
($)
Est.
($)
Chg.
(%)
Est.
($)
Chg.
(%)
90-Day
Move
In Est.
(%)
YTD
Total
Return
(%)
Quadrix
Overall
Score
Allete ($58; ALE)
0.93
0.90
2
3.27
(5)
(2)
16
70
Atmos Energy
($74; ATO)
1.40
1.40
0
3.29
6
0
18
56
Avista ($42; AVA)
0.89
0.80
20
2.05
8
0
19
44
CMS Energy ($41; CMS)
0.59
0.59
(19)
2.02
7
0
16
47
Entergy ($77; ETR)
1.35
1.18
(33)
5.11
(15)
2
14
49
EQT Midstream
($77; EQM)
1.39
1.19
18
5.01
1
6
3
98
NextEra Energy
($119; NEE)
1.55
1.39
10
6.16
8
0
16
44
Portland General
($41; POR)
0.68
0.61
10
2.12
4
(9)
15
38
Public Service Ent.
($47; PEG)
0.93
0.88
(19)
2.88
(1)
(1)
22
43
Scana ($71; SCG)
1.23
1.34
(12)
3.97
4
(1)
18
38
Spectra Energy Ptnrs.
($48; SEP)
1.05
0.87
6
3.37
(19)
10
2
89
Spire ($66; SR) *
2.37
2.28
5
3.38
6
0
11
NA
Star Gas ($9; SGU)
0.79
 NA 
(27)
 NA 
NA
NA
20
93
UGI ($41; UGI)
1.24
1.25
(2)
1.98
(2)
(1)
21
79
Unitil ($40; UTL)
0.78
0.88
(20)
1.88
(1)
(4)
13
37
Notes: Quadrix scores are percentile ranks, with 100 the best.     Fiscal 2016 ends in September for Atmos Energy, Spire, Star Gas Partners, and UGI.     NA Not available.    
* Formerly called Laclede Group (LG), Spire will receive new Quadrix scores in the coming weeks.

 


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