Jim Cramer Explains How Utility Stocks Can Climb

NEW YORK (TheStreet) -- TheStreet's Jim Cramer believes several utilities are still undervalued after the sector's recent run, including Dominion Resources  (D), Duke Energy  (DUK), Con Ed  (ED) and American Electric Power  (AEP), but these are all about interest rates going lower.

Cramer says in order for these stocks, and the rest of the energy sector, to climb, the 10-year treasury note must take a run at 2.5%. He thinks this can happen because of a shortage of high-quality interest rate bonds. Secondly, the U.S. looks "very cheap" at 2.6% compared to what Italy, Portugal and Spain are paying.

If interest rates hit 2.5% or 2.4%, then Cramer sees another boost to utilities; otherwise, he feels they are mostly tapped out.

Must Watch: Jim Cramer: Utilities Will Get a Leg Up if Interest Rates Drop

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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Separately, TheStreet Ratings team rates DOMINION RESOURCES INC as a "buy" with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate DOMINION RESOURCES INC (D) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, growth in earnings per share, compelling growth in net income and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • D's revenue growth has slightly outpaced the industry average of 1.8%. Since the same quarter one year prior, revenues slightly increased by 2.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • DOMINION RESOURCES INC has improved earnings per share by 13.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DOMINION RESOURCES INC increased its bottom line by earning $3.09 versus $2.49 in the prior year. This year, the market expects an improvement in earnings ($3.53 versus $3.09).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Multi-Utilities industry. The net income increased by 165.4% when compared to the same quarter one year prior, rising from -$659.00 million to $431.00 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Multi-Utilities industry and the overall market, DOMINION RESOURCES INC's return on equity exceeds that of both the industry average and the S&P 500.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
  • You can view the full analysis from the report here: D Ratings Report

STOCKS TO BUY: TheStreet's Stocks Under $10 has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

Separately, TheStreet Ratings team rates DUKE ENERGY CORP as a "buy" with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate DUKE ENERGY CORP (DUK) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, compelling growth in net income, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • DUK's revenue growth has slightly outpaced the industry average of 3.4%. Since the same quarter one year prior, revenues slightly increased by 7.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • DUKE ENERGY CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, DUKE ENERGY CORP increased its bottom line by earning $3.73 versus $3.06 in the prior year. This year, the market expects an improvement in earnings ($4.55 versus $3.73).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Electric Utilities industry average. The net income increased by 58.2% when compared to the same quarter one year prior, rising from $435.00 million to $688.00 million.
  • Net operating cash flow has increased to $1,392.00 million or 10.03% when compared to the same quarter last year. Despite an increase in cash flow, DUKE ENERGY CORP's cash flow growth rate is still lower than the industry average growth rate of 44.78%.
  • The debt-to-equity ratio is somewhat low, currently at 0.99, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.42 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • You can view the full analysis from the report here: DUK Ratings Report

STOCKS TO BUY: TheStreet's Stocks Under $10 has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

Separately, TheStreet Ratings team rates CONSOLIDATED EDISON INC as a "buy" with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate CONSOLIDATED EDISON INC (ED) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, good cash flow from operations, growth in earnings per share and increase in net income. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Net operating cash flow has increased to $1,314.00 million or 36.73% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -5.36%.
  • CONSOLIDATED EDISON INC has improved earnings per share by 12.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CONSOLIDATED EDISON INC reported lower earnings of $3.61 versus $3.86 in the prior year. This year, the market expects an improvement in earnings ($3.75 versus $3.61).
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 1.8%. Since the same quarter one year prior, revenues slightly dropped by 1.2%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Multi-Utilities industry average. The net income increased by 13.0% when compared to the same quarter one year prior, going from $207.00 million to $234.00 million.
  • You can view the full analysis from the report here: ED Ratings Report

STOCKS TO BUY: TheStreet's Stocks Under $10 has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

Separately, TheStreet Ratings team rates AMERICAN ELECTRIC POWER CO as a "buy" with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate AMERICAN ELECTRIC POWER CO (AEP) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, compelling growth in net income, notable return on equity and good cash flow from operations. We feel these strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • AEP's revenue growth has slightly outpaced the industry average of 3.4%. Since the same quarter one year prior, revenues slightly increased by 4.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • AMERICAN ELECTRIC POWER CO reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, AMERICAN ELECTRIC POWER CO increased its bottom line by earning $3.04 versus $2.60 in the prior year. This year, the market expects an improvement in earnings ($3.34 versus $3.04).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Electric Utilities industry. The net income increased by 1547.6% when compared to the same quarter one year prior, rising from $21.00 million to $346.00 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Electric Utilities industry and the overall market on the basis of return on equity, AMERICAN ELECTRIC POWER CO has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • Net operating cash flow has increased to $1,066.00 million or 19.50% when compared to the same quarter last year. Despite an increase in cash flow, AMERICAN ELECTRIC POWER CO's cash flow growth rate is still lower than the industry average growth rate of 44.78%.
  • You can view the full analysis from the report here: AEP Ratings Report

STOCKS TO BUY: TheStreet's Stocks Under $10 has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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