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4 Utility Stocks Likely To Beat Q2 Earnings Estimates

The performance of utilities doesn’t usually fluctuate due to their traditional safe-investment appeal to investors. The regulated nature of their business gives their revenues a high level of certainty. Moreover, domestic orientation shields them from foreign currency translation headwinds.

However, the sector underperformed the S&P 500 in the first half of 2017 on concerns over rising interest rates. The industry gained 4.7% during this period compared with the S&P 500’s rally of 8.3%.

Historically, electric utilities have heavily relied on coal for a large part of power generation. This has become a big challenge for the utilities in these times of enhanced environmental awareness. However, President Trump’s decision to repeal the Clean Power Plan and walk out of the Paris Agreement will definitely provide fresh life for the coal-based electricity units.

The utility sector is capital-intensive. These companies need huge capital to set up generation facilities, and transmission and distribution infrastructure. The Federal Reserve has raised the rates twice in 2017 – in March and June. This will definitely affect the margins of the utilities.

However, with the rising interest rates reducing the value of bonds, the appeal of stable regular dividend paying utilities will entice investors.

Q2 Performance

Going by our weekly Earnings Outlook, four out of the 16 sectors in the Zacks coverage universe are expected to witness an earnings decline for Q2. The utility sector will likely see an earnings decline of 2.7%.

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