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How Are Utility ETFs Reacting to Mixed Q4 Earnings?

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The utility sector has come up with mixed results so far this earnings season. Of the 17.9% S&P companies in the sector that have reported, 80% beat bottom-line estimates. For these companies, earnings rose 4.6% while revenues declined 0.1% year over year, per the Earnings Trends issued on Feb 10.

The continuously aggravating coronavirus crisis has impacted almost all sectors. Oil markets have struggled with drying demand due to coronavirus-induced shutdowns. However, with reopening of global economies, introduction of coronavirus vaccines 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 Jan 26, NextEra Energy (NEE - Free Report) reported fourth-quarter 2020 adjusted earnings of 40 cents per share, surpassing the Zacks Consensus Estimate of 39 cents by 2.6%. Earnings rose 11.1% on a year-over-year basis. In the quarter, operating revenues totaled $4.40 billion, missing the Zacks Consensus Estimate of $4.94 billion by 11%. Also, revenues declined 4.2% year over year.

The company projects 2021 earnings in the range of $2.40-$2.54. The metric is projected to see a CAGR of 6-8% per year through 2023, off a 2021 base. As a result, its earnings per share guidance for 2022 and 2023 is estimated in the bands of $2.55-$2.75 and $2.77-$2.97, respectively.

On Feb 16, Dominion Energy (D - Free Report) reported fourth-quarter 2020 operating earnings of 81 cents per share, surpassing the Zacks Consensus Estimate by 5.2%. However, operating earnings were 20.6% lower than the year-ago figure. The quarterly earnings were within the guided range of 73-87 cents per share. Total revenues came in at $3.52 billion, missing the consensus estimate of $3.67 billion by 4.1% and dropping 9.6% from the prior-year quarter’s $3.90 billion.

For first-quarter 2021, Dominion expects operating earnings within $1.00-$1.15 per share. It expects 2021 earnings per share in the range of $3.70-$4.00. The company maintained long-term earnings and dividend growth rate of 6.5% and 6%, respectively, through 2025.

On Feb 11, Duke Energy Corporation (DUK - Free Report) reported fourth-quarter 2020 earnings of $1.03 per share, which beat the Zacks Consensus Estimate of $1.02 by 1%. The metric was up 13.2% year over year. Total operating revenues came in at $5.78 billion, down 5.3% from the prior year’s $6.10 billion. The reported figure also lagged the Zacks Consensus Estimate of $6.22 billion by 7.1%.

The company issued its 2021 adjusted EPS guidance at $5.00-$5.30.

Utility ETFs in Focus

In the current scenario, let’s discuss ETFs that have relatively high exposure to the above-mentioned utility companies:

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 32.8% weight. Its AUM is $11.99 billion and expense ratio is 0.12%. The fund has lost about 3.4% since Jan 25 (as of Feb 16). It carries a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (read: Biden Favors $1.9T COVID Stimulus: ETFs to Win/Lose).

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 66 holdings, with the above-mentioned companies constituting 28.8%. Its AUM is $4.40 billion and expense ratio is 0.10%. It has declined around 2.7% since Jan 25 (as of Feb 16). It carries a Zacks ETF Rank #3, with a Medium-risk outlook.

 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 29.2%. Its AUM is $792 million and expense ratio is 0.43%. It has lost around 2.8% since Jan 25 (as of Feb 16). The fund carries a Zacks ETF Rank of 3, with a Medium-risk outlook.

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