Investing is more than just researching various stocks and choosing to buy based on technical and fundamental analysis. Sometimes, it’s going with your gut on when to walk away from an investment. Here are three utilities stocks that savvy investors may want to consider bailing on. Let’s dive in.
Eversource Energy (ES)
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Eversource Energy (NYSE:ES) has long been a household name in utilities stocks, specifically for utilities like electricity and natural gas. However, recent financial reports have raised some eyebrows, leading investors to reconsider their stance on this energy giant.
In Q2 2023, Eversource Energy’s earnings totaled only $15.4 million, equating to just $0.04 per share. Year-over-year (YoY), this was a marked decline from $291.9 million, or $0.84 per share.
This downward spiral could be the result of Eversource deciding to divest its stake in offshore wind projects. While intending to reshape the company’s portfolio, the move came at a cost: a huge after-tax impairment charge of $331.0 million in both the second quarter and first half of 2023. There were additional charges tied to various transactions and transitions, totaling $6.2 million in the second quarter of 2023 and $6.7 million in the first half.
Although these charges have been present in previous years, it has undeniably compounded the financial challenges. However, removing these exceptional charges and the impairment of offshore wind, Eversource’s underlying earnings present a slightly rosier picture, with underlying earnings totaling $844.3 million in the first half of 2023 and $352.6 million in Q2.
This suggests that, beneath the surface, Eversource’s core business is still generating some profits, albeit not as robust as before. Therefore, it may not be one of the utilities stocks I would recommend.
Artesian Resources (ARTNA)
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Artesian Resources’ (NASDAQ:ARTNA) mission is to provide safe and reliable water supply and wastewater treatment services to certain regions. While its cause is admirable, there are some troubling aspects that may prompt investors to take a closer look at its holdings.
In terms of financial performance, Artesian Resources experienced a decline in its diluted net income per share, which fell to $0.44 in the second quarter and $0.84 year-to-date. The decline from $0.53 and $1.01 in the same periods last year indicate a drop in performance. Despite a slight increase in revenue, with earnings of $0.2 million in the second quarter and $0.5 million year-to-date, the decline in earnings per share is cause for concern.
In addition, the company has requested a water rate increase from the Delaware Public Service Commission. Artesian Resources claims it is necessary to fund ongoing infrastructure improvements and increased operating costs. However, this move may not be well received by consumers and could damage the company’s public image.
The company has also made significant investments totaling $32.3 million in water and wastewater infrastructure this year. To fund these efforts, it raised $36.2 million through the sale of Class A non-voting common stock. Potential for impressive long-term results aside, it is crucial to evaluate whether it will provide a satisfactory return on investment.
New Fortress Energy (NFE)
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New Fortress Energy (NASDAQ:NFE) is at the forefront of natural gas-fired power generation. Its core business revolves around the construction and operation of natural gas-fired power plants. It has additional interests in liquefied natural gas production and other energy infrastructure projects.
In financial terms, it has demonstrated remarkable results, boasting adjusted EBITDA of $246 million in the second quarter of 2023 and $686 million in the first half of the year. Net income figures are equally impressive, reaching $120 million in Q2 2023 and $272 million in first half 2023, translating into adjusted earnings per share of $0.58 and $1.48, respectively.
However, despite these achievements and a positive outlook, some investors may approach this company with caution. Why? In part because it is investing heavily in infrastructure projects. Any unexpected challenges to these efforts could affect the company’s financial stability.
In addition, the company is gearing its revenues toward infrastructure, rather than gas sales. While this strategic shift is in line with global energy trends, it introduces an element of uncertainty regarding future revenues.
Finally, despite efforts to reduce debt, some investors may remain wary of the company’s current level of indebtedness, which could contribute to share price volatility.
As of this writing, Gabriel Osorio-Mazzilli did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Gabriel Osorio is a former Goldman Sachs and Citigroup employee. He possesses discipline in bottom-up value investing and volatility-based long/short equities trading.
