Zacks Industry Outlook Highlights: Genon Energy, TransAlta, Middlesex Water and Duke Energy
CHICAGO, Oct. 24, 2012 /PRNewswire/ -- Today, Zacks Equity Research discusses the U.S. Utilities, including Genon Energy (NYSE: GEN), TransAlta Corporation (NYSE: TAC), Middlesex Water Company (Nasdaq: MSEX) and Duke Energy Corporation (NYSE: DUK).
A synopsis of today's Industry Outlook is presented below. The full article can be read at
A big positive for the utility operators is that there is hardly any viable substitute for utility services. We can have different fuel types like coal, oil, natural gas, nuclear power and renewable sources to produce electricity, but do not have any alternative to electricity. Similarly, clean water does not have any substitute. This is the primary driving factor for the industry.
Previously, conventional fossil fuels were used solely to generate electricity. Now alternate sources are also utilized for electricity generation. As per the EIA report, energy generated from alternate sources will increase at an annual rate of 3% from 2010 through 2035.
Regular dividend payment: The utility operators generate more or less stable earnings unless there are severe factors disrupting their operations. These operators likewise reward their shareholders through the payment of sustainable dividends. This has been evident during the economic crisis of 2008-2009 when these operators continued to pay out dividends without fail.
Currently, among the electric utility companies, Genon Energy (NYSE: GEN) has the highest dividend yield of 13.0%. Among the natural gas utilities, TransAlta Corporation (NYSE: TAC) has the highest dividend yield of 7.6%, while within the water utilities Middlesex Water Company (Nasdaq: MSEX) has the highest dividend yield of 3.9%. All these dividend yield numbers compare favorably with the industry average of a yield of 3.8%.
Focused R&D: In their quest to improve the standard of services, the utility operators have relentlessly pursued research and development work. Keeping the rise in demand and efficient use of power in mind, the operators have brought in new smart meters, new transmission and distribution lines, and new gas pipelines into operation.
Utility operators are also benefiting from ongoing research work in the solar photovoltaic (PV) sector. Solar energy is a growing alternate energy source and the new solar cells having higher conversion rates allow operators to generate more power with fewer solar panels. This enables the operators to lower the cost of producing power.
Mergers and acquisitions: Apart from growing organically, the players in the utility industry are carrying out strategic merger and acquisition deals, which lead to cost synergies and better utilization of resources.
We believe that in a mature energy market like the United States, mergers and acquisitions represent a good way to enhance market share. It expands market reach through the usage of transmission and distribution lines, diversifies the generation portfolio of the company and also lowers operating costs through the usage of common back office space to control the expanded operations. Mergers and acquisitions also have risks, but even then these deals are taking place across the board and the utility sector is no exception.
In one of the mega mergers in this space, North Carolina-basedDuke Energy Corporation (NYSE: DUK) completed the acquisition of Progress Energy Inc. in July 2012. The deal was valued at $32 billion including the outstanding debt of the acquired company. This acquisition created one of the largest U.S. utilities and increased Duke Energy's capability to build new power plants to meet future greenhouse-gas emissions limits.
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