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Utility ETFs Dip Despite Strong Earnings

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Utility sector results for Q3 have been very strong. Per Earnings Trend Report issued (on Oct 31) 44.8% of Utility stocks have already released quarterly results, reflecting 18.0% year-over-year earnings growth on 1.3% growth in revenues. The overall Q3 picture of the Utility sector is a positive one, with earnings expected to improve 9.3% year over year and the growth pace steadily improving as the reporting cycle unfolds (read: Signs of Progress in US-Sino Trade Talks Boosts These ETFs).

Nextera Energy (NEE - Free Report) , Duke Energy Corporation (DUK - Free Report) and Dominion Energy (D - Free Report) came up with their Q3 earnings releases after market close on Oct 23, Oct 29 and Nov 2, respectively. Duke Energy and Dominion Energy topped the respective earnings and revenues estimates. Nextera beat on earning but missed on the revenue front.

Earnings in Focus

Nextera

Nextera Energy delivered a positive earnings surprise of 0.46% by reporting earnings per share (EPS) at $1.65, though its revenues which came in at $6.63 billion missed the Zacks Consensus Estimate by 9.62%.  This compares to year-ago EPS and revenues of $1.85 and $4.8 billion, respectively. Nextera has a Zacks ETF Rank #2 (Buy) and a Momentum Score of B.

NextEra Energy continues to expect adjusted earnings per share to be in the range of $7.45 to $7.95 for 2018 (read: Top ETF Stories of October).

Duke Energy

Duke Energy Corporation reported EPS of $1.65, beating the Zacks Consensus Estimate by 12 cents. Earnings improved 3.8% year over year. Revenues came in at $6.6 billion, beating estimates by 4.5%. Revenues improved 2.25% year over year.

Duke Energy narrowed its earnings guidance to $4.66-$4.85 from the previously issued range of $4.55-$4.85. It carries a Zacks ETF Rank #3 (Hold) and has a Value and Momentum Score of B each.

Dominion Energy

Dominion Energy reported earnings of $1.15, beating the Zacks Consensus Estimate of $1.11 and up 11 cents from the year-ago quarter. Revenues came in at $3.45 billion, beating the estimate of $3.33 billion. This compares with year-ago revenues of $3.18 billion. It has a Zacks ETF Rank #3 and belongs to a top-ranked Zacks Industry (top 29%).

Dominion tightened its 2018 EPS guidance range to $3.95-$4.10 from the earlier issued range of $3.80-$4.25.

ETFs in Focus

In the current scenario, we believe it is prudent to discuss the following ETFs that have a relatively high exposure to the three companies.Utilities Select Sector SPDR Fund (XLU - Free Report) , Vanguard Utilities ETF (VPU - Free Report) and iShares U.S. Utilities ETF (IDU - Free Report) ) have lost1.87%, 1.9% and 2%, respectively since earnings release of Nextera (see: all the Utilities/Infrastructure ETFs).

XLU                           

The fund tracks the Utilities Select Sector Index. It comprises 29 holdings with the abovementioned companies carrying 26.19% weight. Its AUM is $7.5 billion and expense ratio is 0.13%. The fund has gained 3.5% year to date and carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

VPU

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 71 holdings with abovementioned companies constituting 22.28%. Its AUM is $3 billion and expense ratio is 0.10%. It has gained 4% year to date and carries a Zacks ETF Rank #3 with a Medium risk outlook.

IDU

The fund tracks the Dow Jones U.S. Utilities Index, providing exposure to U.S. companies that supply electricity, gas, and water. It comprises 51 holdings with abovementioned companies constituting 22.81%. Its AUM is $673 million and expense ratio is 0.43%. It has gained 3.7% year to date. The fund carries a Zacks ETF Rank #3 with a Medium risk outlook.

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