Another Strong Earnings Season

Second-quarter earnings are in for most of the more than 200 essential-service companies in our coverage universe. You can find our analysis of these results in this month’s update to the Utility Report Card.

One quarter’s results won’t make or break most companies, but this earnings season was of particular importance for two reasons.

By most valuation metrics, utility stocks trade at levels not seen the early 1960s; this earnings season provided a reality check to see if the companies’ underlying fundamentals lived up to the market’s lofty expectations.

Growth has also stalled out in some industries and economies this year. The past quarter’s earnings and management teams’ outlooks for the remainder of the year provide an early test of how vulnerable companies could be in a bear market or recession.

The vast majority of the names that we cover continue to deliver the goods as businesses, with most meeting or exceeding their guidance.

Although some companies earned higher buy targets and we feel more comfortable with some names that had landed in our doghouse, many of the stocks in our Utility Report Card trade at unsustainably high valuations. At these levels, the risk of a pullback remains elevated.