Suppose you’re having a rough month. You didn’t meet sales targets so your income fell unexpectedly. At the same time, your car broke down so you got to take it into the shop. And you screwed something up in your taxes so the IRS wants its money (with interest, of course).
You deserve a break. However, you’re not getting it from the utilities, believe me.
That’s the power of natural monopolies. You pay up or you’re shut down. And there’s no easy way to fight back. So, why not join them? Here are undervalued utilities stocks to consider.
Entergy (ETR)
Based in New Orleans, Louisiana, Entergy (NYSE:ETR) is an integrated energy company engaged primarily in electric power production. As well, it conducts retail distribution in the Deep South of the U.S. market. Since the start of the year, ETR stock slipped a hair below parity. Over the past 52 weeks, it’s down about 2.5%.
To be sure, the red ink isn’t exactly encouraging. However, it also helps make ETR one of the undervalued utilities stocks to buy. Right now, shares trade at a trailing-year earnings multiple of 9.24X. That’s lower than the sector median stat of 14.35X.
In addition, Entergy has been putting up decent earnings performances. Between the second and fourth quarters of last year, the average earnings surprise came out to 6.37%. For the current fiscal year, experts believe sales of $13.52 billion are on tap. That would imply an 11.3% growth rate from last year’s $12.15 billion print.
Lastly, covering experts rate shares a moderate buy with a $111.11 price target. That implies over 8% upside potential.
National Grid (NGG)
A British multinational electricity and gas utility firm, National Grid (NYSE:NGG) focuses primarily in the U.K. There, it owns and operates electricity and gas transmission networks. However, the company also has a presence in the northeastern part of the U.S., where it also operates transmission networks. Since the beginning of the year, NGG slipped about half-a-percent.
However, NGG could slowly be making a comeback. In the trailing one-year period, shares returned more than 6%. Financially, the company is compelling because of its cheap multiple. Right now, shares trade at 5.32X trailing-year earnings. Again, that’s well below the sector median of 14.35X. Additionally, it trades at 5.32X operating cash flow. In contrast, the sector’s median value is 7.15X.
We also can’t ignore the passive income. At this moment, the company offers a forward dividend yield of 3.53%. The payout ratio comes in at 49.2%, which offers confidence in terms of yield sustainability. Therefore, it’s one of the undervalued utilities stocks to consider.
PG&E (PCG)
One of the more controversial names among undervalued utilities stocks, PG&E (NYSE:PCG) has caught the ire of many of its customers. Last month, Cal Matters reported on small businesses that were struggling to stay afloat due to PG&E’s electric bill rate increases. It’s the other side of the natural monopoly argument: raise rates too high and you can cause economic problems.
In the charts, PCG stock has suffered. Since the start of the year, it dipped more than 10%. At the same time, the red ink could present a longer-term discounted opportunity. Specifically, PCG trades at a forward earnings multiple of 11.86X. That’s lower than the sector median print of 14.13X.
For the current fiscal year, analysts believe that sales will land at $24.81 billion. That would be a modest improvement over 2023’s top line of $24.43 billion. However, earnings per share may reach $1.35, above last year’s print of $1.23.
Finally, covering experts rate PCG a consensus strong buy with a $19.33 average price target. That implies almost 20% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
