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Will Utility ETFs Keep Gaining on Decent Q2 Earnings Results?

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The utility sector has come up with mostly encouraging results so far this earnings season. Of the 57.1% S&P companies in the sector that have reported, 62.5% beat bottom-line and top-line estimates. For these companies, earnings rose 15.2% while revenues increased 12.1% year over year, per the Earnings Trends  issued on Aug 4.

The energy sector was adversely impacted by pandemic-induced historically low oil price levels, thanks to the dual blows of low demand and surplus supplies. Notably, a surge in coronavirus cases weighed on oil demand. However, reduction in oil supply, increased fiscal stimulus, rise in industrial production and a weak dollar as the Fed remained super dovish are working in support of oil prices and will continue to favor the sector amid the re-opening of the U.S. economic scenario.

However, the world’s largest economy is witnessing a surge in the number of new delta variant cases. The resurging cases have scared investors thatimplementation of new lockdown measures to control the spread may hurt the global economic recovery achieved so far,following the reopening of economies. In particular, stocks that were gaining from the re-opening economy belonging to sectors like travel, energy, industrial, materials and retail are likely to beimpacted.

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 Jul 23, NextEra Energy NEE reported second-quarter 2021 adjusted earnings of 71 cents per share, surpassing the Zacks Consensus Estimate of 67 cents by 5.6%. Earnings rose 9.2% on a year-over-year basis. In the quarter, operating revenues totaled $3.93 billion, missing the Zacks Consensus Estimate of $5.13 billion by 23.4%. Also, revenues declined 6.6% 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 estimated at $2.55-$2.75 and $2.77-$2.97, respectively.

On Aug 6, Dominion Energy D reported second-quarter 2021 operating earnings of 76 cents per share, missing the Zacks Consensus Estimate by a penny. However, operating earnings were 4.1% higher than the year-ago figure. The quarterly earnings were within the guided range of 70-80 cents per share. Total revenues came in at $3.04 billion, missing the consensus estimate of $3.29 billion by 7.7% and dropping 2.2% from the prior-year quarter’s $3.11 billion.

For third-quarter 2021, Dominion expects operating earnings guidance in the range of 95 cents to $1.10 per share. The company reported earnings of $1.08 per share in the year-ago period. It reaffirmed 2021 earnings per share in the range of $3.70-$4.00.

On Aug 5, Duke Energy Corporation DUK reported second-quarter 2021 adjusted earnings of $1.15 per share, which beat the Zacks Consensus Estimate of $1.12 by 2.7%. The metric was up 6.5% year over year. Total operating revenues came in at $5.76 billion, up 6.2% from the prior year’s $5.42 billion. The reported figure also exceeded the Zacks Consensus Estimate of $5.75 billion by 0.1%.

The company has reaffirmed its 2021 adjusted earnings per share guidance at $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 31.8% weight. Its AUM is $13.32 billion and expense ratio is 0.12%. The fund has returned about 3.9% since Jul 22 (as of Aug 9). It carries a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (read: 5 Sector ETFs That Crushed the Market in July).

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 26.9%. Its AUM is $5.04 billion and expense ratio is 0.10%. It has increased around 3.8% since Jul 22 (as of Aug 9). It carries a Zacks ETF Rank #3, 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 47 holdings, with the above-mentioned companies constituting 28.5%. Its AUM is $845.3 million and expense ratio is 0.43%. It has gained around 3.8% since Jul 22 (as of Aug 9). The fund carries a Zacks ETF Rank of 3, with a Medium-risk outlook.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
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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