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Can Utility ETFs Gain on Mixed Q2 Earnings Amid Coronavirus?
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The utility sector has come up with mixed results so far this earnings season. Of the 57.1% S&P companies in the sector that have reported, 75% beat bottom-line estimates, while 6.3% surpassed revenue estimates. Earnings rose 16.2% while revenues declined 7.4% year over year, per the Earnings Trends issued on Aug 5.
Notably, the utility sector is a great investment area for those seeking yields and safety. It is known for its non-cyclical nature and acts as a safe haven for investors during choppy market conditions. Moreover, utilities act as a defensive option to stay invested in more rewarding equity markets. However, this should be avoided by those eyeing market-beating returns. Meanwhile, the coronavirus crisis has impacted almost all sectors. Oil markets have been struggling with drying demand due to coronavirus-induced shutdowns. However, with reopening of global economies and resuming business activities, the sector might get support from increased demand.
Against this backdrop, we take a look at some big industrial earnings releases and see if these can leave an impact on ETFs exposed to the space.
Inside the Earnings Results
On Jul 24, NextEra Energy (NEE - Free Report) reported second-quarter 2020 adjusted earnings of $2.61 per share, beating the Zacks Consensus Estimate of $2.50 by 4.4%. Earnings rose 11% on a year-over-year basis. In the quarter, operating revenues totaled $4.204 billion, missing the Zacks Consensus Estimate of $5.270 billion by 20.2%. Also, revenues declined 15.4% year over year.
The company maintained its long-term earnings growth guidance. The company’s earnings are expected see a compound annual rate of 6-8% per year through 2021, off its base of $7.70 in 2018. The company expects contributions from Florida acquisitions to boost earnings by 15 cents in 2020 and 20 cents in 2021. For 2020, the company expects adjusted earnings per share in the range of $8.70-$9.20. NextEra Energy expects 2022 adjusted earnings per share in the range of $10-$10.75, indicating 6-8% growth from 2021 EPS.
On Jul 31, Dominion Energy (D - Free Report) reported second-quarter 2020 operating earnings of 82 cents per share, surpassing the Zacks Consensus Estimate by a penny. Also, operating earnings were 6.5% higher than the year-ago 77 cents. The quarterly earnings were near the high end of the guidance of 75-85 cents per share. Total revenues came in at $3.585 billion, missing the consensus estimate of $3.995 billion by 10.3% and dropping 9.7% from the prior-year quarter’s $3.970 billion.
For third-quarter 2020, Dominion Energy expects operating earnings within 85 cents to $1.05 per share. The company reported earnings of $1.18 per share in the year-ago quarter. Going on, Dominion Energy restated its 2020 earnings guidance at the range of $3.37-$3.63 per share. The company recorded earnings of $4.24 per share in 2019.
On Aug 10, Duke Energy Corporation (DUK - Free Report) second-quarter 2020 earnings of $1.08 per share, which beat the Zacks Consensus Estimate of $1.04 by 3.9%. Total operating revenues came in at $5.421 billion, down 7.7% from the prior year’s $5.873 billion. The reported figure also missed the Zacks Consensus Estimate of $5.753 billion by 5.8%.
Duke Energy maintained its 2020 adjusted EPS guidance. It continues to expect adjusted earnings per share in the range of $5.05-$5.45.
Utility ETFs in Focus
In the current scenario, let’s discuss ETFs that have relatively high exposure to the above-mentioned utility companies (see: all the Utilities/Infrastructure ETFs).
The Utilities Select Sector SPDR Fund (XLU - Free Report)
The fund tracks the Utilities Select Sector Index. It comprises 28 holdings with the above-mentioned companies carrying 31.5% weight. Its AUM is $11.64 billion and expense ratio is 0.13%. The fund has lost 0.9% since Jul 23 (as on Aug 12). It carries a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (read: Q2 Earnings Likely To Plunge: Invest in These Sector ETFs).
The fund tracks the MSCI US Investable Market Utilities 25/50 Index and includes stocks of companies that distribute electricity, water, or gas, or that operate as independent power producers. It comprises 67 holdings, with the above-mentioned companies constituting 27.3%. Its AUM is $4.06 billion and expense ratio is 0.10%. It has lost around 0.8% since Jul 23 (as on Aug 12). It carries a Zacks ETF Rank #3, with a Medium-risk outlook (read: 5 ETFs to Buy as Fed Holds Rates Steady at Near Zero).
The fund tracks the Dow Jones U.S. Utilities Index, providing exposure to U.S. companies that supply electricity, gas, and water. It comprises 47 holdings, with the above-mentioned companies constituting 28.6%. Its AUM is $789.5 million and expense ratio is 0.43%. It has lost around 0.8% since Jul 23 (as on Aug 12). The fund carries a Zacks ETF Rank of 3, with a Medium-risk outlook.
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Can Utility ETFs Gain on Mixed Q2 Earnings Amid Coronavirus?
The utility sector has come up with mixed results so far this earnings season. Of the 57.1% S&P companies in the sector that have reported, 75% beat bottom-line estimates, while 6.3% surpassed revenue estimates. Earnings rose 16.2% while revenues declined 7.4% year over year, per the Earnings Trends issued on Aug 5.
Notably, the utility sector is a great investment area for those seeking yields and safety. It is known for its non-cyclical nature and acts as a safe haven for investors during choppy market conditions. Moreover, utilities act as a defensive option to stay invested in more rewarding equity markets. However, this should be avoided by those eyeing market-beating returns. Meanwhile, the coronavirus crisis has impacted almost all sectors. Oil markets have been struggling with drying demand due to coronavirus-induced shutdowns. However, with reopening of global economies and resuming business activities, the sector might get support from increased demand.
Against this backdrop, we take a look at some big industrial earnings releases and see if these can leave an impact on ETFs exposed to the space.
Inside the Earnings Results
On Jul 24, NextEra Energy (NEE - Free Report) reported second-quarter 2020 adjusted earnings of $2.61 per share, beating the Zacks Consensus Estimate of $2.50 by 4.4%. Earnings rose 11% on a year-over-year basis. In the quarter, operating revenues totaled $4.204 billion, missing the Zacks Consensus Estimate of $5.270 billion by 20.2%. Also, revenues declined 15.4% year over year.
The company maintained its long-term earnings growth guidance. The company’s earnings are expected see a compound annual rate of 6-8% per year through 2021, off its base of $7.70 in 2018. The company expects contributions from Florida acquisitions to boost earnings by 15 cents in 2020 and 20 cents in 2021. For 2020, the company expects adjusted earnings per share in the range of $8.70-$9.20. NextEra Energy expects 2022 adjusted earnings per share in the range of $10-$10.75, indicating 6-8% growth from 2021 EPS.
On Jul 31, Dominion Energy (D - Free Report) reported second-quarter 2020 operating earnings of 82 cents per share, surpassing the Zacks Consensus Estimate by a penny. Also, operating earnings were 6.5% higher than the year-ago 77 cents. The quarterly earnings were near the high end of the guidance of 75-85 cents per share. Total revenues came in at $3.585 billion, missing the consensus estimate of $3.995 billion by 10.3% and dropping 9.7% from the prior-year quarter’s $3.970 billion.
For third-quarter 2020, Dominion Energy expects operating earnings within 85 cents to $1.05 per share. The company reported earnings of $1.18 per share in the year-ago quarter. Going on, Dominion Energy restated its 2020 earnings guidance at the range of $3.37-$3.63 per share. The company recorded earnings of $4.24 per share in 2019.
On Aug 10, Duke Energy Corporation (DUK - Free Report) second-quarter 2020 earnings of $1.08 per share, which beat the Zacks Consensus Estimate of $1.04 by 3.9%. Total operating revenues came in at $5.421 billion, down 7.7% from the prior year’s $5.873 billion. The reported figure also missed the Zacks Consensus Estimate of $5.753 billion by 5.8%.
Duke Energy maintained its 2020 adjusted EPS guidance. It continues to expect adjusted earnings per share in the range of $5.05-$5.45.
Utility ETFs in Focus
In the current scenario, let’s discuss ETFs that have relatively high exposure to the above-mentioned utility companies (see: all the Utilities/Infrastructure ETFs).
The Utilities Select Sector SPDR Fund (XLU - Free Report)
The fund tracks the Utilities Select Sector Index. It comprises 28 holdings with the above-mentioned companies carrying 31.5% weight. Its AUM is $11.64 billion and expense ratio is 0.13%. The fund has lost 0.9% since Jul 23 (as on Aug 12). It carries a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (read: Q2 Earnings Likely To Plunge: Invest in These Sector ETFs).
Vanguard Utilities ETF (VPU - Free Report)
The fund tracks the MSCI US Investable Market Utilities 25/50 Index and includes stocks of companies that distribute electricity, water, or gas, or that operate as independent power producers. It comprises 67 holdings, with the above-mentioned companies constituting 27.3%. Its AUM is $4.06 billion and expense ratio is 0.10%. It has lost around 0.8% since Jul 23 (as on Aug 12). It carries a Zacks ETF Rank #3, with a Medium-risk outlook (read: 5 ETFs to Buy as Fed Holds Rates Steady at Near Zero).
iShares U.S. Utilities ETF (IDU - Free Report)
The fund tracks the Dow Jones U.S. Utilities Index, providing exposure to U.S. companies that supply electricity, gas, and water. It comprises 47 holdings, with the above-mentioned companies constituting 28.6%. Its AUM is $789.5 million and expense ratio is 0.43%. It has lost around 0.8% since Jul 23 (as on Aug 12). The fund carries a Zacks ETF Rank of 3, with a Medium-risk outlook.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>