We are reaffirming our fair value estimates and economic moat and moat trend ratings for all the U.S. utilities we cover after a three-month pullback that we think now offers buying opportunities.
On a median basis, U.S. utilities now trade in line with our fair value estimates, the cheapest they’ve been since 2015. This is a sharp reversal since Nov. 14, when utilities reached a peak 1.18 price/fair value ratio. Since then, the Morningstar US Utilities Index is down 14% and has underperformed the S&P 500 by 19 percentage points. No other sector has performed as poorly. Since July 2016, when our coverage universe touched a 1.21 price/fair value ratio, utilities have underperformed the S&P 500 by 30 percentage points and returned negative 2%. Other valuation metrics such as price/earnings (17 times forward) and price/book (1.8 times) have contracted sharply.
Andrew Bischof, CFA, CPA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.