Domestic-focused, capital-intensive companies in the Zacks Utilities sector continue to perform steadily, as the demand for utility services hardly fluctuates with the vagaries of the economy. Cost management initiatives, new electric, water and natural gas rates and customer growth continue to help the utility sector maintain operational stability.

Utility operation is capital intensive, as consistent investment is required to upgrade, maintain and replace older wires and electric poles, replace old pipelines and maintain and expand infrastructure to provide reliable services to an expanding customer base. Hence, apart from internal sources of funds, utilities depend on the credit market for funds to carry on upgrades.

Utilities are traditionally averse to interest rate hikes. After a series of rate hikes, the Federal Reserve has finally lowered the benchmark rate, with two rate cuts lowering the existing rates by 75 basis points and bringing rates to a range of 4.50-4.75%. There is a possibility of another rate cut when the Fed meets in December. The reasons behind the rate cuts are to boost economic growth, the ultimate goal being price stability and maximizing employment.

Utilities a Safe Haven

Per a Statista report, the U.S. 2025 GDP growth is projected to be 2.15%, lower than the 2.77% projected for 2024. Even with the projected drop in GDP, Utilities can still be banked upon due to their ability to pay regular dividends and deliver consistent performance. The consistent dividend payment ability makes the utilities a bond substitute for the investors.

With interest rates coming down in 2024 and two rate cuts this year, the S&P 500 Utilities has returned 12.33% in the past six months compared with the S&P 500 group’s rally of 10.56%.

Per a projection from the U.S. Energy Information Administration, retail prices of electricity will continue to increase at all customer segments in 2025, which is a way of boosting the utilities’ top-line growth.

In 2025, earnings from the Utilities sector are expected to improve 8.7% on 4% improvement in revenues. (For more details, refer to our weekly Earnings Trends)

Selecting the Utilities

We have picked a few stocks with Zacks Rank #1 (Strong Buy) or 2 (Buy) and VGM Score of A or B. Stocks with a VGM Score of A or B and a Zacks Rank of 1 or 2 have better returns, on average.

Each of the utilities mentioned below has a market capitalization of more than $3 billion and the 2025 Zacks Earnings Estimate for these utilities has shown an upward revision in the past 60 days.

All the companies have outperformed the Utilities sector in the past three months and offer regular dividend yields to their shareholders.

Price Performance (Three Months)

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PG&E Corporation PCG is based in Oakland, CA. This public utility generates revenues mainly by selling and delivering electricity and natural gas to customers. Its long-term (three to five years) earnings growth is pegged at 9.61%. The company’s current dividend yield is 0.2%.

PG&E pulled off an average positive earnings surprise of 7.28% in the last four quarters. Its earnings estimates for 2025 have increased 1.4% in the last 60 days. The company currently has a Zacks Rank of 2 and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Vistra Corporation VST is based in Irving, TX. It retails electricity and natural gas to residential, commercial, and industrial customers across the United States and the District of Columbia. The company benefits from strong residential and business results in Texas, Midwest and Northeast markets. The long-term earnings growth of this utility is pegged at 17.4%. The company’s current dividend yield is 0.61%.

Vistra pulled off an average positive earnings surprise of 7.05% in the last four quarters. Its earnings estimates for 2025 have increased 9.8% in the last 60 days. The company currently sports a Zacks Rank #1 and a VGM Score of B.

New Jersey Resources Corporation NJR is based in Wall, NJ. The company distributes and stores natural gas. It continues to benefit from its investments in infrastructure, which help it serve its expanding customer base more efficiently. The company expects capital expenditures in the range of $495-$675 million for fiscal 2025. The company’s current dividend yield is 3.79%.

The company reported earnings on par with estimates in the last reported quarter. New Jersey Resources earnings estimates for fiscal 2025 have increased 7.3% in the last 60 days. The stock currently has a Zacks Rank #2 and a VGM Score of B.

Otter Tail Corporation OTTR is based in Fergus Falls, MN. The company and its subsidiaries engage in electric utility, manufacturing, and plastic pipe businesses in the United States. Otter Tail benefits from its two-platform business operations, which include attractive rate-based growth in its Electric platform and long-term growth potential in its Manufacturing platform. The company’s current dividend yield is 2.46%.

The company pulled off an average positive earnings surprise of 10.99% in the last four quarters. Otter Tail earnings estimates for 2025 have increased 3.1% in the last 60 days. The stock currently has a Zacks Rank #2 and a VGM Score of B.

 

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Pacific Gas & Electric Co. (PCG) : Free Stock Analysis Report

Otter Tail Corporation (OTTR) : Free Stock Analysis Report

NewJersey Resources Corporation (NJR) : Free Stock Analysis Report

Vistra Corp. (VST) : Free Stock Analysis Report

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