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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.

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