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How Are Utility ETFs Reacting to Decent Q4 Earnings Results?

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The utility sector has come up with mostly encouraging results so far this earnings season. Of the 17.9% S&P companies in the sector that have reported, 40% beat bottom and 60% surpassed the top-line estimates. For these companies, earnings rose 3.1% while revenues increased 13.9% year over year, per the Earnings Trends issued on Feb 9.

Investors are closely tracking the energy sector, which is showing strength as global demand and economic growth levels are on the path of recovery from the pandemic lows. The coronavirus vaccine rollout is gradually controlling the outbreak's spread across the globe. The optimism surrounding the reopening of global economies and increasing demand is painting a rosy picture for the cyclical sectors.

Oil prices have been rising since the beginning of 2022. The upside in crude oil prices is triggered by factors like easing Omicron variant concerns, supply shortage, and geopolitical tensions in Eastern Europe and the Middle East.

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 utility earnings releases and see if these can leave an impact on ETFs exposed to the space.

Inside the Earnings Results

On Jan 25, NextEra Energy (NEE - Free Report) reported fourth-quarter 2021 adjusted earnings of 41 cents per share, surpassing the Zacks Consensus Estimate of 40 cents by 2.5%. Earnings rose 2.5% on a year-over-year basis. In the quarter, operating revenues totaled $5.05 billion, missing the Zacks Consensus Estimate of $5.44 billion by 7.2%. However, revenues rose 14.8% year over year.

The company raised its 2022 earnings expectation to the range of $2.75-$2.85 per share from $2.55-$2.75. For 2023, NextEra Energy expects earnings per share in the range of $2.93-$3.08, up from the prior expectation of $2.97-$2.97. For 2023 through 2025, NextEra Energy expects earnings per share to grow roughly 6-8% per year,.

On Feb 11, Dominion Energy (D - Free Report) reported fourth-quarter 2021 operating earnings of 90 cents per share, meeting the Zacks Consensus Estimate. However, operating earnings were 11.1% higher than the year-ago figure. The quarterly earnings were within the guided range of 85-95 cents per share. Total revenues came in at $3.88 billion, outpacing the consensus estimate of $3.85 billion and climbing 10.2% from the prior-year quarter’s $3.52 billion.

Dominion initiated its first-quarter 2022 operating earnings guidance in the range of $1.10-$1.25 per share. The company initiated its 2022 earnings per share view in the range of $3.95-$4.25.

On Feb 10, Duke Energy Corporation (DUK - Free Report) reported fourth-quarter 2021 adjusted earnings of 94 cents per share, which met the Zacks Consensus Estimate. The metric was down 8.7% year over year. Total operating revenues came in at $6.24 billion, up 8% from the prior year’s $5.78 billion. The reported figure surpassed the Zacks Consensus Estimate of $6.14 billion by 1.7%.

Duke Energy has provided its 2021 adjusted EPS guidance. The company expects to generate adjusted earnings per share in the range of $5.30-$5.60.

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 29 holdings, with the above-mentioned companies carrying 30.8% weight. Its AUM is $13.40 billion and expense ratio is 0.10%. The fund has lost about 2.9% since Jan 24 (as of Feb 15). It carries a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (read: 4 Defensive Sector ETFs to Protect Your Portfolio).

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 64 holdings, with the above-mentioned companies constituting 26.5%. Its AUM is $5.38 billion and expense ratio is 0.10%. It has decreased around 3.3% since Jan 24 (as of Feb 15). It carries a Zacks ETF Rank #3, with a Medium-risk outlook.

 iShares U.S. Utilities ETF (IDU - Free Report)

The fund tracks the Russell 1000 Utilities RIC 22.5/45 Capped Index, providing exposure to U.S. companies that supply electricity, gas and water. It comprises 44 holdings, with the above-mentioned companies constituting 26%. Its AUM is $821.1 million and expense ratio is 0.41%. It has declined around 3.3% since Jan 24 (as of Feb 15). The fund carries a Zacks ETF Rank of 3, with a Medium-risk outlook.