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Quarter-End Insights

Utilities: Roller-Coaster Ride Continues, but Fundamentals Are Strong

Stock price volatility offers opportunities for investors committed to holding utilities for the long run.

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  • The median price/fair value estimate for our global utilities coverage is 1.05 through Sept. 15. The median price/fair value estimate for the 47 U.S. utilities we cover is 1.04. The median price/fair value estimate for the 24 non-U.S. utilities we cover is 1.07.
  • As 10-year U.S. Treasury rates fell from 3% at the beginning of 2014 to 2.6% in June, U.S. utilities outperformed every sector with an 18% total return. Since interest rates began climbing again, utilities have been the worst performers.
  • In Europe, there is increasing chatter that Continental countries might follow the United Kingdom and most of the Eastern United States into capacity markets. The first-ever auction in the U.K. is scheduled for December.
  • We continue to be bullish on U.S. power and natural gas prices, a boon for most diversified utilities and power producers. In Europe, gas prices have collapsed and government support for renewables is waning, offering some relief for power generation margins.

Travis Miller does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.