Goldman Sachs has adjusted its utility sector estimates ahead of third-quarter earnings, highlighting warmer weather as a potential boost for earnings. The investment bank reduced its baseline utility multiple by 0.5x, acknowledging the impact of higher interest rates on regulated utility performance. The sector has underperformed by 26% over the past six months, but Goldman Sachs now anticipates a 20% total return to its updated price targets across regulated utilities.
The firm expects most companies to meet their full-year guidance, with several set to provide third-quarter plan updates. Xcel Energy, American Electric Power, Ameren, and WEC Energy Group are among those anticipated to announce capital plan increases. Goldman Sachs suggests Xcel Energy and Ameren may raise their earnings per share growth outlook.
Goldman Sachs is particularly optimistic about Sempra Energy, projecting a 6% above-consensus performance for the third quarter due to warm weather in Texas benefiting Oncor. Conversely, the bank sees downside risk for Eversource Energy, with a 12% below-consensus forecast attributed to negative impacts from transmission return on equity and regulatory disallowances around storm costs.
The firm will also monitor updates on five-year plans, regulatory proceedings, data center load updates, and legislative updates from California utilities.