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Reasons to Add Otter Tail (OTTR) to Your Portfolio Right Now

Otter Tail Corporation (OTTR) makes a strong case for investment in the utility space, given its improving earnings estimates and steady investments.

This story originally appeared on Zacks

Otter Tail Corporation OTTR, given its two-platform business model that consists of Electric and Manufacturing units, provides attractive investment opportunities in the utility space. The company is enhancing shareholder value through its high-performing, low-cost electric utility and disciplined manufacturing companies.

Let’s focus on the factors that make this Zacks Rank #1 (Strong Buy) stock a strong investment pick at the moment. You can see the complete list of today’s Zacks #1 Rank stocks here.

- Zacks

Growth Projections, Surprise History & Long-Term Earnings Growth

The Zacks Consensus Estimate for 2021 earnings per share and revenues is pegged at $3.55 and $1.12 billion, respectively. The bottom- and top-line estimates suggest an increase of 51.7% and 0.3%, respectively, from the year-ago level.

The Zacks Consensus Estimate for 2022 earnings and revenues is pegged at $3.56 per share and $1.14 billion, respectively. The bottom- and top-line estimates suggest a 0.3% and 2.5% increase, respectively, from the year-ago level.

Otter Tail’s trailing four-quarter earnings surprise is 31.8%, on average. The company’s long-term (three to five years) earnings growth is currently projected at 4.7%.

Investments & Emission Reduction

Otter Tail makes consistent investments to upgrade and maintain the existing infrastructure for providing 24x7 reliable services to the customer base. The company has plans to invest $762 million in the 2021-2025 time period in electric, manufacturing and plastics segments.

Nearly 18.3% of the planned expenditure will be utilized for clean energy resource additions to its portfolio, and another 36% will be used for adding as well as upgrading electric transmission and distribution lines. The ongoing investments and planned future spending will assist the company to make its systems clean, and provide affordable as well as reliable services to customers.

Focused investment in cleaner sources of energy to produce electricity is expected to reduce carbon emissions from generation units by 50% within 2025 from 2005 levels. It also aims to reduce emission from generation units by nearly 97% within 2050 from 2005 levels.

Return on Equity & Dividend Yield

Return on Equity (ROE) indicates how efficiently a company is utilizing shareholders’ funds to generate returns. At present, its ROE is 14.41%, higher than the industry average of 9.42%.

Currently, the company has a dividend yield of 2.95% compared with the Zacks S&P 500 composite’s 1.36%.

Debt Position

Its total debt to capital ratio is 40.6 compared with the industry average of 51.8. This indicates that the company is managing the business far more efficiently than peers in the same space.

Its times interest earned ratio at the end of second-quarter 2021 was 5.1, up 70 basis points sequentially. The strong ratio indicates that the company will be able to meet debt obligations in the near future without any difficulties.

Price Performance

In the past 12 months, the stock has gained 37.4% compared with the industry’s rally of 12.7%.

Zacks Investment Research

Image Source: Zacks Investment Research

Other Stocks to Consider

Other top-ranked stocks in the same sector include American States Water Company AWR, California Water Service Group CWT and Middlesex Water Company MSEX, each currently holding a Zacks Rank #2.

American States Water, California Water Service Group and Middlesex Water Company delivered an average earnings surprise of 4.4%, 15.4% and 0.5%, respectively.

The Zacks Consensus Estimate for 2021 earnings for American States Water, California Water Service Group and Middlesex Water Company has moved up 0.4%, 2.9% and 3.7%, respectively, in the past 30 days.

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California Water Service Group (CWT): Free Stock Analysis Report


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