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Will Utility ETFs Keep Gaining on Decent Q3 Earnings Results?

The utility sector has come up with mostly encouraging results so far this earnings season. Of the 53.6% S&P companies in the sector that have reported, 58.9% beat bottom and top-line estimates. For these companies, earnings rose 1.5% while revenues increased 9.4% year over year, per the Earnings Trends  issued on Nov 3.

Investors have been closely tracking the energy sector,which has been showing strength as the global demand and economic growth levels are on the path of recovery from the pandemic-led slump. The coronavirus vaccine rollout is gradually helping control the spread of the outbreak across the globe. The optimism surrounding the gradual reopening of global economies and increasing demand is painting a rosy picture for cyclical sectors.

Consequently, the energy sector has been attracting investors’ attention on the latest rally in oil prices. The price of crude recently reached a seven-year high level. Notably, shrinking crude inventories, supply disruption in the Gulf of Mexico following a couple of hurricanes and surging fuel demand pushed oil prices higher.

The Organization of the Petroleum Exporting Countries (OPEC) and a Russia-led group of oil producers, collectively called OPEC+, have decided to raise production by 400,000 barrels a day each month. Notably, the group has decided to adhere to its previously agreed plan of slowly returning production to pre-pandemic levels. Market pundits were estimating higher production rise from OPEC+ considering the oil price’s consistent rise.

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 Oct 20, NextEra Energy NEE reported third-quarter 2021 adjusted earnings of 75 cents per share, surpassing the Zacks Consensus Estimate of 72 cents by 4.2%. Earnings rose 11.9% on a year-over-year basis. In the quarter, operating revenues totaled $4.37 billion, missing the Zacks Consensus Estimate of $5.89 billion by 25.9%. Also, revenues declined 8.7% year over year.

The company reinstated 2021 earnings per share expectation at 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 guided range for 2022 and 2023 is pegged at $2.55-$2.75 and $2.77-$2.97, respectively.

On Nov 5, Dominion Energy D reported third-quarter 2021 operating earnings of $1.11 per share, outpacing the Zacks Consensus Estimate by 4.7%. However, operating earnings were 2.8% higher than the year-ago figure. The quarterly earnings were higher than the guided range of 95 cents to $1.10 per share. Total revenues came in at $3.18 billion, missing the consensus estimate of $3.85 billion by 17.4% and dropping 11.9% from the prior-year quarter’s $3.61 billion.

For fourth-quarter 2021, Dominion expects operating earnings guidance in the range of 85-95 cents per share. The company reported earnings of 81 cents per share in the year-ago period. It narrowed 2021 earnings per share expectation to the range of $3.80-$3.90 from $3.70-$4.00.

On Nov 4, Duke Energy Corporation DUK reported third-quarter 2021 adjusted earnings of $1.88 per share, which beat the Zacks Consensus Estimate of $1.81 by 3.9%. The metric was up 0.5% year over year. Total operating revenues came in at $6.95 billion, up 3.4% from the prior year’s $6.72 billion. The reported figure lagged the Zacks Consensus Estimate of $7.02 billion by 0.9%.

The company narrowed its 2021 adjusted earnings per share guidance. It now expects to generate adjusted earnings per share in the range of $5.10-$5.30 compared with the prior expectation of $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                            

The fund tracks the Utilities Select Sector Index. It comprises 28 holdings with the above-mentioned companies carrying 32.7% weight. Its AUM is $12.41 billion and expense ratio is 0.12%. The fund has returned about 0.5% since Oct 19 (as of Nov 8). 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

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 27.8%. Its AUM is $5.10 billion and expense ratio is 0.10%. It has increased around 0.8% since Oct 19 (as of Nov 8). It carries a Zacks ETF Rank #3, with a Medium-risk outlook.

 iShares U.S. Utilities ETF IDU

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 43 holdings, with the above-mentioned companies constituting 26.9%. Its AUM is $835.1 million and expense ratio is 0.41%. It has gained around 0.7% since Oct 19 (as of Nov 8). The fund carries a Zacks ETF Rank of 3, with a Medium-risk outlook.

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