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How Are Utility ETFs Reacting to Mixed Q3 Earnings?

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The utility sector has come up with mixed results so far this earnings season. Of the 96.4% S&P companies in the sector that have reported, 77.8% beat bottom-line estimates, while 40.7% surpassed revenue estimates. Earnings rose 2.8% while revenues declined 3.1% year over year, per the Earnings Trends issued on Nov 11.

The coronavirus crisis, which continues to aggravate, 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 see a pickup in demand. Meanwhile, 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.

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 Oct 21, NextEra Energy (NEE - Free Report) reported third-quarter 2020 adjusted earnings of $2.66 per share, surpassing the Zacks Consensus Estimate of $2.65 by 0.4%. Earnings rose 11.3% on a year-over-year basis. In the quarter, operating revenues totaled $4.79 billion, missing the Zacks Consensus Estimate of $5.61 billion by 14.6%. Also, revenues declined 14.1% year over year.

The company has increased financial expectations and extended long-term growth outlook. It expects 2020 and 2021 earnings in the range of $2.18-$2.30 and $2.40-$2.54, respectively. Its earnings are expected to increase at a compound annual rate of 6-8% per year through 2023, off a 2021 base. As a result of a 4-for-1 stock split, which is going to be effective from Oct 27, 2020, the company has updated its earnings guidance.

On Nov 5, Dominion Energy (D - Free Report) reported third-quarter 2020 operating earnings of $1.08 per share, surpassing the Zacks Consensus Estimate by 8%. Also, operating earnings were 6.1% lower than the year-ago figure. The quarterly earnings were above the guidance range of 85 cents to $1.05 per share. Total revenues came in at $3.61 billion, missing the consensus estimate of $3.64 billion by 1% and dropped 4.6% from the prior-year quarter’s $3.78 billion.

For fourth-quarter 2020, Dominion Energy expects operating earnings within 73-87 cents 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 Nov 5, Duke Energy Corporation (DUK - Free Report) reported third-quarter 2020 earnings of $1.87 per share, which beat the Zacks Consensus Estimate of $1.79 by 4.5%. Total operating revenues came in at $6.72 billion, down 3.2% from the prior year’s $6.94 billion. The reported figure also lagged the Zacks Consensus Estimate of $6.96 billion by 3.5%.

Duke Energy narrowed its 2020 adjusted EPS guidance. It currently expects adjusted earnings per share in the range of $5.05-$5.20 as against the earlier 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 31.9% weight. Its AUM is $12.36 billion and expense ratio is 0.13%. The fund has gained 2.5% since Oct 20 (as on Nov 12). It carries a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (read: Trade With Low Beta Sector ETFs Ahead of Election).

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 65 holdings, with the above-mentioned companies constituting 28.7%. Its AUM is $4.56 billion and expense ratio is 0.10%. It has gained around 3% since Oct 20 (as on Nov 12). It carries a Zacks ETF Rank #3, with a Medium-risk outlook (read: ETF Strategies to Fight the Rising Coronavirus Fears).

 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 28.8%. Its AUM is $872.5 million and expense ratio is 0.43%. It has gained around 2.7% since Oct 20 (as on Nov 12). The fund carries a Zacks ETF Rank of 3, with a Medium-risk outlook.

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