Utility companies worldwide are considered a low-risk investment option as they provide indispensable services such as heating, water, electricity, gas, etc. Utility companies worldwide are well-positioned for long-term growth as the world transitions to cleaner energy sources.
Therefore, it could be wise to buy fundamentally strong foreign utilities stocks Enel SpA (ENLAY), Capital Power Corporation (CPXWF), TransAlta Corporation (TAC), and Central Puerto S.A. (CEPU).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the utility industry is well-positioned for growth.
Amid geopolitical conflicts and macroeconomic challenges like high inflation and aggressive interest rate hikes, the utility sector outperformed other sectors last year as investors sought the safety offered by utilities.
Moreover, utilities will likely benefit from the world’s transition to renewable energy sources. Governments worldwide are offering incentives to transition to cleaner energy sources. The global utilities market is expected to grow at a CAGR of 6.8% to reach $8.31 trillion by 2027.
Let’s take a closer look at the fundamentals of the featured stocks.
Enel SpA (ENLAY)
Based in Rome, Italy, ENLAY operates as an integrated electricity and gas operator worldwide. The company generates, distributes, transmits, and sells electricity; transports and markets natural gas; supplies LNG and other fuels; and constructs and operates generation plants and distribution grids. It operates wind, thermal, hydroelectric, nuclear, photovoltaic, and geothermal power plants.
On July 13, 2023, ENLAY announced that it had signed an agreement with INPEX Corporation through its fully-owned subsidiary Enel Green Power S.p.A. to sell 50% of the two entities owning all of the group activities in Australia, namely Enel Green Power Australia Pty Ltd and Enel Green Power Australia Trust (together, “Enel Green Power Australia” or “EGPA”).
Upon the closing of the transaction, Enel Green Power and INPEX are expected to be jointly controlled by Enel Green Power Australia. This deal is in line with ENLAY’s current strategic plan, which involves implementing partnerships in certain businesses and geographies to enhance value creation. The deal will help generate a positive impact of nearly €87 million ($97.50 million) on ENLAY’s fiscal 2023 ordinary and reported EBITDA.
In terms of forward EV/EBIT, ENLAY’s 11.70x is 37.4% lower than the 18.70x industry average. Its 1.35x forward EV/Sales is 63.6% lower than the 3.71x industry average. Likewise, its 0.57x forward Price/Sales is 72.4% lower than the 2.07x industry average.
ENLAY’s operating profit for the first quarter ended March 31, 2023, increased 4.2% year-over-year to €2.95 billion ($3.30 billion). Its profit for the period (owners of parent and non-controlling interests) came in at €1.45 billion ($1.62 billion). The company’s reported EBITDA rose 4.7% over the prior-year quarter to €4.77 billion ($5.34 billion). Also, its EPS came in at €0.10.
Over the past nine months, the stock has gained 70.5% to close the last trading session at $7.02.
ENLAY’s POWR Ratings reflect this positive outlook. ENLAY has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the B-rated Utilities – Foreign industry, ENLAY is ranked #10 out of 54 stocks. It has a B grade for Growth, Value, and Stability. Click here to see the other ratings of ENLAY for Momentum, Sentiment, and Quality.
Capital Power Corporation (CPXWF)
Headquartered in Edmonton, Canada, CPXWF develops, acquires, owns, and operates renewable and thermal power generation facilities in Canada and the United States. It generates electricity from various energy sources, including wind, solar, waste heat, natural gas, and coal.
On July 5, 2023, CPXWF and First Solar, Inc. (FSLR) announced that CPXWF had secured its first order for approximately 1 gigawatt (GWDC) of responsibly produced, ultra-low carbon thin film solar modules. The Series 6 plus modules will be delivered between 2026 and 2028, supporting the company’s growing development portfolio.
CPXWF’s Senior VP and Chief Legal, Development, and Commercial officer Chris Kopecky said, “We are excited to partner with First Solar and its responsibly produced ultra-low carbon solar technology, which supports our solar development pipeline.”
In terms of forward EV/EBIT, CPXWF’s 9.34x is 50.1% lower than the 18.70x industry average. Its 5.81x forward EV/EBITDA is 49.3% lower than the 11.46x industry average. Likewise, its 1.60x forward Price/Sales is 22.8% lower than the 2.07x industry average.
For the fiscal first quarter ended March 31, 2023, CPXWF’s revenues and other income rose 152.9% year-over-year to C$1.27 billion ($964.72 million). Its adjusted EBITDA increased 15.2% year-over-year to C$401 million ($304.61 million). The company’s net income attributable to shareholders of the company increased 134.4% year-over-year to C$286 million ($217.25 million).
Also, its adjusted funds from operations increased 5% year-over-year to C$210 million ($159.52 million). Also, its EPS came in at C$2.38, representing an increase of 147.9% year-over-year.
For fiscal 2023, CPXWF’s revenue is expected to increase 4.9% year-over-year to $2.26 billion. Over the past nine months, the stock has declined 2% to close the last trading session at $31.21.
CPXWF’s POWR Ratings reflect this positive outlook. It has an overall rating of A, which translates to Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Stability, and Quality. It is ranked #3 in the same industry. To see the other ratings of CPXWF for Momentum and Sentiment, click here.
TransAlta Corporation (TAC)
Headquartered in Calgary, Canada, TAC develops, produces, and sells electric energy. It operates through the Hydro, Wind and Solar, Gas, Energy Transition, and Energy Marketing segments.
On July 11, 2023, TAC announced that it entered into a definitive arrangement agreement under which it will acquire all of the outstanding common shares of RNW not already owned, directly or indirectly, by TAC and certain of its affiliates, subject to the approval of RNW shareholders.
TAC’s President and CEO John Kousinioris said, “With the execution of our Clean Electricity Growth Plan well underway, it is clear that the strategies of both TransAlta and RNW have converged. Now is the right time to bring these two companies together to create a single clean electricity leader. The combined company’s greater scale and enhanced positioning will drive benefits and unlock value for all of our shareholders.”
In terms of forward EV/EBIT, TAC’s 9.29x is 50.3% lower than the 18.70x industry average. Its 2.87x forward EV/Sales is 22.7% lower than the 3.71x industry average. Likewise, its 1.18x forward Price/Sales is 42.7% lower than the 2.07x industry average.
For the fiscal first quarter ended March 31, 2023, TAC’s revenues rose 48.2% year-over-year to C$1.09 billion ($827.98 million). Its gross margin increased 53.1% over the prior-year quarter to C$732 million ($556.04 million). The company’s operating income increased 46.3% year-over-year to C$439 million ($333.47 million).
Also, its net earnings increased 62.1% year-over-year to C$334 million ($253.71 million). In addition, its EPS came in at C$1.10, representing an increase of 59.4% year-over-year.
Street expects TAC’s EPS and revenue for the quarter ended June 30, 2023, to increase 1.4% and 11.2% year-over-year to $0.64 and $393.85 million, respectively. Over the past nine months, the stock has gained 20.9% to close the last trading session at $9.99.
TAC’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It is ranked #8 in the same industry. It has an A grade for Quality and a B for Sentiment. To see the other ratings of TAC for Growth, Value, Momentum, and Stability, click here.
Central Puerto S.A. (CEPU)
Headquartered in Buenos Aires, Argentina, CEPU generates and sells electric power to private and public customers in Argentina. It also produces steam.
On May 5, 2023, CEPU announced the acquisition of the forestry company EVASA. CEPU’s CEO Fernando Bonnet said, “This acquisition represents a milestone for us and our forestry activity development strategy, which we consider is key in the potential growth of Argentina. This sector can be a source of opportunities for future business, linked to the processing and industrialization of timber, carbon bonds, and energy generation from biomass.”
On February 23, 2023, CEPU announced that it had acquired Central Costanera for $48 million. The acquisition will enable CEPU to add an installed capacity of 2,305 MW, taking its total installed capacity beyond 7,100 MW.
In terms of forward non-GAAP P/E, CEPU’s 5.37x is 69.7% lower than the 17.71x industry average. Its 3.28x forward EV/Sales is 11.6% lower than the 3.71x industry average. Likewise, its 0.61x forward P/B is 63.8% lower than the 1.68x industry average.
CEPU’s revenues for the first quarter ended March 31, 2023, came in at ARS27.94 billion ($104.33 million). Its operating income came in at ARS23.89 billion ($89.20 million). The company’s adjusted EBITDA came in at ARS29.85 billion ($111.46 million). In addition, its net income for the period came in at ARS129.43 million ($483.28 thousand).
For fiscal 2023, CEPU’s EPS and revenue are expected to increase 279.4% and 30.9% year-over-year to $1.27 and $663.86 million, respectively. Over the past year, the stock has gained 117.6% to close the last trading session at $6.79.
CEPU’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It has a B grade for Value and Quality. Within the Utilities – Foreign industry, it is ranked #9. Click here to see the additional ratings of CEPU for Growth, Momentum, Stability, and Sentiment.
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ENLAY shares were trading at $6.97 per share on Thursday morning, down $0.05 (-0.71%). Year-to-date, ENLAY has gained 33.06%, versus a 19.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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