Goldman Sachs analyst Carly Davenport calls for a Buy on five utility stocks, citing energy transition opportunities. The focus on decarbonization, policy reforms, and clean energy incentives in the Inflation Reduction Act, along with the increasing capital investments in the sector, are driving a transition towards renewable energy. This shift is creating investment opportunities within the utility sector, highlighted Davenport.
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In a note to investors dated June 8, the analyst recommended a Buy on the following five utility stocks.
- NextEra Energy (NYSE:NEE)
- Southern Company (NYSE:SO)
- Xcel Energy (NASDAQ:XEL)
- Sempra Energy (NYSE:SRE)
- American Electric Power (NASDAQ:AEP)
While these corporations are leading the clean energy transition, let’s check what TipRanks’ data reveals about these stocks.
Are Utilities a Good Investment?
Utility stocks are low-risk investments as their services are deemed essential, and the demand for their offerings remains steady even amid a challenging macro backdrop. Further, their regulated and contracted asset base adds stability to their earnings and cash flows, making them relatively immune to economic cycles.
TipRanks’ Stock Comparison tool shows that Wall Street has a favorable outlook on all five utility stocks. However, only NEE stock has a Strong Buy consensus rating. Even though analysts are bullish about NEE stock, it sports a Neutral Smart Score on TipRanks, implying it could perform in line with the broader market averages.
As for AEP, analysts are cautiously optimistic about the stock. However, it sports an Outperform Smart Score of nine, implying it has a higher potential to beat the broader market.
What is the Stock Price Forecast for NextEra Energy?
Davenport initiated coverage on NextEra Energy with a price target of $90, implying 20.2% upside potential. The analyst expects NEE to benefit from a favorable regulatory environment, its leverage to renewables growth, solid earnings, and a discounted valuation compared to its historical average.
NEE is the largest generator of clean energy from renewable sources and a leading player in the battery storage space. Its continued investment to drive retail rate base and a growing portfolio of clean energy positions it well to deliver significant growth.
Including Davenport, NEE stock has received nine Buy and three Hold recommendations for a Strong Buy consensus rating. Further, analysts’ average price target of $89.45 implies 19.43% upside potential from current levels.
What is the Prediction for AEP Stock?
Besides for the positive regulatory environment, Davenport remains impressed with AEP’s five-year capital plan aimed at expanding the company’s transmission and regulated renewables base.
AEP has a proven track record of investing in renewable energy sources and lowering fleet emissions. The company’s capital plan includes $9 billion in regulated space in the coming years, which will add stability to its earnings.
AEP stock has received six Buy, three Hold, and one Sell recommendations for a Moderate Buy consensus rating. Analysts’ average price target of $96.75 implies 14.25% upside potential.
Bottom Line
Utility stocks are relatively safer bets for investors seeking stability and regular income. As for NEE and AEP, both companies appear to be attractive investments in the utility space, given their growing renewable base and solid earnings generation capacity.
