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How Will Utility ETFs React to Mixed Q1 Earnings?

The utility sector has come up with mixed results so far this earnings season. Of the 46.4% S&P companies in the sector that have reported, 53.8% beat the bottom-line estimates, while none surpassed revenue estimates. Earnings have risen 8% while revenues have declined 3.3% year over year, per the Earnings Trends  issued on May 6.

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 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. Meanwhile, the coronavirus crisis has impacted almost all sectors. Oil markets have been struggling with drying demand due to coronavirus-induced shutdowns, still-ample supplies and most importantly, storage crisis.

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 Apr 22, NextEra Energy NEE reported first-quarter 2020 adjusted earnings of $2.38 per share, beating the Zacks Consensus Estimate of $2.21 by 7.7%. Earnings rose 8.2% on a year-over-year basis. In the quarter, operating revenues totaled $4.613 billion, surpassing the Zacks Consensus Estimate of $4.607 billion by 0.1%. Also, revenues improved 13.2% year over year.

The company reiterated its long-term earnings growth guidance. The company’s earnings are expected see a compound annual rate of 6-8% per year through 2021, off its base of $7.70 in 2018. The company expects contributions from Florida acquisitions to boost earnings by 15 cents in 2020 and 20 cents in 2021. NextEra Energy expects 2022 adjusted earnings per share in the range of $10-$10.75, indicating 6-8% growth from 2021 EPS. The firm currently aims to add 11,500-18,500 MW of renewable power projects to its portfolio within the 2019-2022 time frame.

On May 5, Dominion Energy D reported first-quarter 2020 operating earnings of $1.09 per share, lagging the Zacks Consensus Estimate by a penny. Also, operating earnings were below the midpoint of the company’s guided range of $1.05-$1.25 per share. The reported figure declined from year-ago earnings of $1.10. Total revenues came in at $4.50 billion, missing the consensus estimate of $4.73 billion by 5% but rising 16.5% from the prior-year quarter’s $3.86 billion.

For second-quarter 2020, Dominion Energy expects operating earnings within 75-85 cents per share. The company reaffirmed its 2020 earnings guidance at the range of $4.25-$4.60 per share. 

On May 12, Duke Energy Corporation DUK reported first-quarter 2020 earnings of $1.14 per share, which lagged the Zacks Consensus Estimate of $1.21 by 5.8%. Total operating revenues came in at $5.95 billion, down 3.5% from the prior year’s $6.16 billion. The reported figure also missed the Zacks Consensus Estimate of $6.27 billion by 5.1%.

Duke Energy reiterated its 2020 adjusted EPS guidance. It continues to expect adjusted earnings per share in the range 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 above-mentioned utility companies (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 30.9% weight. Its AUM is $11.79 billion and expense ratio is 0.13%. The fund has lost 3.2% since Apr 22 (as on May 12). It carries a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook (read: Any Bright Spot in Q1 Earnings? Sector ETFs & Stocks to Buy).

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 66 holdings, with the above-mentioned companies constituting 27%. Its AUM is $3.71 billion and expense ratio is 0.10%. It has lost around 3.2% since Apr 22 (as on May 12). It carries a Zacks ETF Rank #2, with a Medium-risk outlook.

 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 $846.1 million and expense ratio is 0.43%. It has lost 3.3% since Apr 22 (as on May 12). The fund carries a Zacks ETF Rank of 3 (Hold), with a Medium-risk outlook.

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Dominion Energy Inc (D): Free Stock Analysis Report
 
Duke Energy Corporation (DUK): Free Stock Analysis Report
 
NextEra Energy Inc (NEE): Free Stock Analysis Report
 
Utilities Select Sector SPDR ETF (XLU): ETF Research Reports
 
Vanguard Utilities ETF (VPU): ETF Research Reports
 
iShares US Utilities ETF (IDU): ETF Research Reports
 
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