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Utility ETFs Gain Despite Mixed Q4 Earnings

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The utility sector has come up with mixed results so far this earnings season. Of the 32.1% S&P companies in the utilities sector that have reported, 66.7% beat on the bottom-line estimates, while none of these surpassed revenue estimates. Earnings have risen 63.8% and revenues have declined 0.1% year over year, per the Earnings Trends issued on Feb 12 (read: Will Virus Infect Q1 Earnings? Multi-Asset ETFs to Play). 

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 stock-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. Of late, China has been grappling with the coronavirus outbreak that has already claimed at least 1,488 lives in the nation, along with around 65,000 confirmed cases. The heightening tensions are causing investors to seek refuge in safer investment options, with the utility sector grabbing major attention (read: ETF Strategies to Mark as Virus Scare May Hit Global Growth).

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 24, NextEra Energy NEE reported fourth-quarter 2019 adjusted earnings of $1.44 per share, lagging the Zacks Consensus Estimate of $1.54 by 6.5%. Moreover, earnings declined 3.4% on a year-over-year basis. In the quarter, operating revenues totaled $4.59 billion, missing the Zacks Consensus Estimate of $4.79 billion by 4.3%. However, revenues improved 4.5% year over year.

The company reiterated its long-term earnings growth guidance. Its earnings are expected to witness a compound annual rate of 6-8% per year through 2021, off its base of $7.70 in 2018. NextEra Energy expects 2022 adjusted earnings per share in the range of $10-$10.75, indicating 6-8% growth from the 2021 EPS. NextEra currently aims to add 11,500-18,500 MW of renewable power projects to its portfolio within the 2019-2022 time frame.

On Feb 11, Dominion Energy (D - Free Report) reported fourth-quarter operating earnings of $1.18 per share, surpassing the Zacks Consensus Estimate of $1.16 by 1.7%. However, operating earnings came in near the mid-point of the company’s guided range of $1.10-$1.25 per share. The reported figure improved from the year-ago earnings of 89 cents per share. Total revenues came in at $4.48 billion, missing the consensus estimate of $4.88 billion by 8.2% but up 33.1% from the prior year’s $3.36 billion.

For first-quarter 2020, Dominion Energy expects operating earnings within $1.05-$1.25 per share. Dominion Energy initiated its 2020 earnings guidance in the range of $4.25-$4.60 per share. 

On Feb 13, Duke Energy Corporation DUK reported fourth-quarter 2019 earnings of 91 cents per share, which outpaced the Zacks Consensus Estimate of 88 cents by 3.4%. The bottom line improved 8.3% year over year on increased investments in electric and gas utilities, and new renewable projects placed in service. Total operating revenues came in at $6.10 billion, down 0.2% from the prior year’s $6.11 billion. The reported figure, also, missed the Zacks Consensus Estimate of $6.25 billion by 2.3%.

Duke Energy issued its 2020 adjusted EPS guidance. It expects adjusted earnings per share of $5.05-$5.45. 

Utility ETFs in Focus

In the current scenario, we believe it is prudent to discuss the following ETFs that have relatively high exposure to the utility companies discussed (see: all the Utilities/Infrastructure ETFs).

Utilities Select Sector SPDR Fund XLU                           

The fund tracks the Utilities Select Sector Index. It comprises 28 holdings with the above-mentioned companies carrying 28.82% weight. Its AUM is $11.85 billion and expense ratio is 0.13%. The fund has gained 2.6% since Jan 24 (as on Feb 13). It carries a Zacks ETF Rank #2 (Buy), with a Medium risk outlook (read: ETFs to Buy as Utilities Are Favored Amid Virus Scare).

Vanguard Utilities ETF 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 68 holdings with the above-mentioned companies constituting 24.5%. Its AUM is $4.81 billion and expense ratio is 0.10%. It has gained 2.5% since Jan 24 (as on Feb 13). It carries a Zacks ETF Rank #2, with a Medium risk outlook (read: Is Recession Knocking at the Door? ETF Strategies to Follow).

 iShares U.S. Utilities ETF 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 48 holdings with the above-mentioned companies constituting 25.93%. Its AUM is $1.03 billion and expense ratio is 0.43%. It has gained 2.3% since Jan 24 (as on Feb 13). The fund carries a Zacks ETF Rank of 3 (Hold), with a Medium risk outlook.

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