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3 Utilities Stocks in the regulated electric sector with a low beta will be presented in this article, including Duke Energy Corp. (DUK), The Southern Company (SO), and American Electric Power Company, Inc. (AEP). With increasing market volatility, investors can consider these defensive, non-cyclical, and low beta stocks for their conservative portfolio. The stocks in the utility sector hold relatively better compared to other sectors during difficult economic conditions.

Duke Energy Corp.

Duke Energy Corporation, the largest regulated utility company in the United States following its merger with Progress Energy, provides regulated utility operations in 5 states in the Southeast and Midwest United States. DUK was up 0.69% and closed at $69.59 on February 26, 2013. DUK had been trading in the range of $59.63-$71.13 in the past 52 weeks. DUK has a very low beta of 0.32.

On February 21, 2013, Drexel Hamilton initiated coverage on DUK with a Hold rating and a price target of $69.00. According to Yahoo Finance, analysts have a mean target price of $71.08 and a median target price of $71.00 for DUK. Analysts are expecting an EPS of $1.06 with revenue of $5.61B for the current quarter ending in March 2013. For fiscal 2013, analysts are predicting an EPS of $4.34 with revenue of $24.89B, 26.80% higher than 2012.

There are a few positive factors for DUK:

  • Higher revenue growth (3 year average) of 3.2 (vs. the industry average of 1.0)
  • Higher net margin of 9.4% (vs. the average of 8.8%)
  • Lower debt/equity of 0.9 (vs. the average of 1.1)
  • Lower P/B of 1.2 (vs. the industry average of 1.4)
  • Lower Forward P/E of 12.7 (vs. the S&P 500's average of 14.0)
  • DUK offers an annual dividend yield of 4.40%

Technically, the MACD (12, 26, 9) indicator is showing a bearish trend, but the MACD difference continues to converge. The momentum indicator, RSI (14), is picking up and indicating a bullish lean at 64.29. DUK is currently trading above its 50-day MA of $66.74 and 200-day MA of $65.71. The next resistance is $70.29, the R1 pivot point, followed by $71.85, the R2 pivot point, as seen from the chart below.

(click to enlarge)

Source: StockCharts.com

The Southern Company

Southern Company is a holding company, which owns Alabama Power, Georgia Power, Gulf Power, and Mississippi Power, each of which is an operating public utility company. SO was up 0.38% and closed at $44.71 on February 26, 2013. Southern had been trading in the range of $41.75-$48.59 in the past 52 weeks. Southern had a very low beta of 0.26.

On February 21, 2013, Drexel Hamilton initiated coverage on SO with a Hold rating and a price target of $44.00. Analysts have a mean target price of $45.71 and a media target price of $45.00 for SO. Analysts, on average, are estimating an EPS of $0.48 with revenue of $3.87B for the current quarter ending in March 2013. For 2013, analysts are projecting an EPS of $2.76 with $17.90B revenue, 8.20% higher than 2012.

There are a few positive factors for Southern:

  • Higher operating margin and net margin of 25.6% and 13.5% (vs. the industry averages of 19.5% and 8.8%)
  • Stronger ROE of 12.0 (vs. the average of 9.7)
  • Lower debt/equity of 1.0 (vs. the industry average of 1.1)
  • Lower Forward P/E of 13.5 (vs. the industry average of 14.0)
  • Southern offers an annual dividend yield of 4.38%

Technically, the MACD (12, 26, 9) indicator is showing a bullish trend. RSI (14) is picking up with a strong bullish lean at 64.55. SO is currently trading above its 50-day MA of $43.40 and 200-day MA of $44.37. The next resistance is $45.04, the R1 pivot point, followed by $45.85, the R2 pivot point, as seen from the chart below.

(click to enlarge)

Source: StockCharts.com

American Electric Power Company, Inc.

American Electric Power Company, Inc. is a public utility holding company, providing electric service, consisting of generation, transmission and distribution, on an integrated basis to its retail customers. AEP was up 1.42% and closed at $46.33 on February 26, 2013. AEP had been trading in the range of $36.97-$46.46 in the past 52 weeks. AEP has a low beta of 0.46.

Analysts have a mean target price of $47.25 and a median target price of $47.00 for AEP. Analysts, on average, are predicting an EPS of $0.81 with revenue of $3.75B for the current quarter ending in March 2013. For 2013, analysts are projecting an EPS of $3.15 with revenue of $15.68B, which is 5.20% higher than 2012.

There are a few positive factors for AEP:

  • Higher revenue growth (3 year average) of 1.5 (vs. the industry average of 1.0)
  • Higher net margin of 10.5% (vs. the average of 8.8%)
  • Stronger ROE of 10.3 (vs. the average of 9.7)
  • Lower debt/equity of 1.0 (vs. the average of 1.1)
  • Lower P/E of 14.3 (vs. the industry average of 17.3)
  • Lower Forward P/E of 10.6 (vs. the S&P 500's average of 14.0)
  • AEP offers an annual dividend yield of 4.06%

Technically, the MACD (12, 26, 9) indicator is showing a bullish trend with diverging MACD difference. RSI (14) is indicating a strong buying momentum at 71.67, where above 70 is considered as over-bought. AEP is currently trading above its 50-day MA of $43.78 and 200-day MA of $41.62. The next resistance is $46.44, the R2 pivot point, as seen from the chart below.

(click to enlarge)

Source: StockCharts.com

How to Invest

While all 3 utility stocks are great for long-term holdings with strong cash flow and a low beta, SO presents the best short-term buying opportunity now, based on the technical analysis. AEP is technically in the over-bought condition while DUK was showing a slightly bearish trend. Investors can also consider using credit put spread options strategy to acquire these 3 stocks at a lower price or to gain some upside premium potential. Investors can also review Utilities Select Sector SPDR Fund (XLU), iShares Dow Jones U.S. Utilities Sector Index Fund (IDU), Guggenheim S&P Equal Weight Utilities ETF (RYU), and ProShares Ultra Utilities ETF (UPW) to gain exposure to these 3 stocks.

Note: All prices are quoted from the closing of February 26, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.

Source: 3 Utilities Stocks For A Conservative Portfolio