Roger S. Conrad

The numbers were never going to be pretty for North American energy midstream companies. Management teams warned this spring that Covid-19 fallout was crushing volumes on both the upstream and downstream ends of the business. But with Kinder Morgan Inc. (NYSE: KMI) clearly managing these turbulent times, investors can afford to remain patient with this sector.

Chevron Corp (NYSE: CVX) and Sunrun Inc (NSDQ: RUN) are weathering industry challenges far better than most rivals, positioning them on the leading edge of a building wave of energy mergers and acquisitions.

Elections have consequences, especially for highly regulated industries like electric utilities. And a prospective Biden Administration could actually get most of the way to its  energy goals because utilities are already quickly moving in this direction.

Just how much damage is Covid-19 fallout doing to corporate earnings, dividends and balance sheets? We’ll get our best indication yet over the next month or so, as the vast majority of coverage universe companies report calendar Q2 results and update guidance.

The good news is regulated utilities appear to be tracking the expectations management communicated during Q1 earnings calls. Conservative Holding Sempra Energy (NYSE: SRE) in late June actually raised the mid-point of its 2020 earnings guidance from $7.10 to $7.50 per share.

No Dow Jones Utility Average member has seen volatility this year like AES Corp (NYSE: AES). The stock hit a 12-year peak on February 18, then fell more than 60 percent, and has since recouped two-thirds of that loss.

Electric utilities measure life of key assets in decades, rather than months or years. Success not only requires making the right call on what in invest in, but being flexible enough to shift course when circumstances change.

Duke Energy (NYSE: DUK) has demonstrated both this month, shelving its Atlantic Coast Pipeline project with Dominion Energy (NYSE: D). The company’s natural gas power plants will be in business for a while, enabling retirement of 6.5 gigawatts of coal capacity since 2010. The utility plans to retire 900 megawatts more by 2025, while shortening lives of 7.7 GW in North Carolina and Indiana.

Q2 earnings reporting season is coming up fast. And while no one is projecting blockbuster gains, certain baseline expectations must be met, and preferably beaten. Regulated utilities with posted earnings guidance offer the easiest benchmarks for gauging progress. Those updating in the past month offer the best odds of avoiding nasty surprises, always key to dodging downside.

Three Utility Report Card coverage universe companies cut dividends since the June issue of CUI posted. What makes them unique is all of them rate buys, as holding in cash now is sowing the seeds for rich returns over the next 12 to 18 months.

The key for investors isn't the fate of one pipeline or another. It's how well-positioned companies are to handle a setback at an asset they own or are building. We win by focusing on the handful of companies that are best-positioned to emerge from this shakeout.