Goldman Sachs updates utility estimates ahead of Q3 earnings

Investing.com -- Goldman Sachs updated its estimates for utilities in its regulated coverage ahead of third-quarter earnings, citing warmer weather in the third quarter as a potential support for earnings performance this quarter.

The investment bank lowered its baseline utility multiple by 0.5x to account for the current higher interest rate environment, which it said has weighed on regulated utility performance. The sector underperformed the S&P 500 by 26% over the last six months. Goldman Sachs now sees 20% total return to its updated price targets across its regulated utility coverage.

Goldman Sachs expects most companies to meet full-year guidance. The firm anticipates third-quarter plan updates from Xcel Energy (NYSE: XEL), American Electric Power (NASDAQ: AEP), Ameren (NYSE: AEE), and WEC Energy Group (NYSE: WEC), with capital plans expected to move higher. The bank said there is potential for Xcel Energy and Ameren to raise their earnings per share growth outlook.

The bank is most above consensus on the quarter for Sempra Energy (NYSE: SRE), where it expects warm weather in Texas to benefit Oncor results. Goldman Sachs is 6% above consensus for Sempra Energy for the third quarter.

The firm sees downside risk to consensus for Eversource Energy (NYSE: ES) from negative impacts of a lower transmission return on equity and regulatory disallowance around storm costs. Goldman Sachs is 12% below consensus for Eversource Energy for the third quarter.

Goldman Sachs said it will watch for updates on five-year plans, regulatory proceedings including large load tariff proceedings and pending rate cases, data center load updates, and legislative updates from California utilities.

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