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How Are Utility ETFs Reacting to Decent Q1 Earnings Results?

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The utility sector has come up with mostly encouraging results so far this earnings season. Of the 46.4% S&P companies in the sector that have reported, 84.6% beat bottom-line estimates. For these companies, earnings rose 16.4% while revenues increased 10.1% year over year, per the Earnings Trends  issued on May 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.

The United States is now also witnessing a decline in daily new coronavirus infection cases count. Strengthening the optimism, the United States administered around 200 million doses of vaccines under 100 days of Biden administration, per a CNN report. According to the U.S. Centers for Disease Control and Prevention (CDC), more than half of American adults received at least one vaccine dose, per a Reuters article.

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 industrial earnings releases and see if these can leave an impact on ETFs exposed to the space.

Inside the Earnings Results

On Apr 21, NextEra Energy NEE reported first-quarter 2021 adjusted earnings of 67 cents per share, surpassing the Zacks Consensus Estimate of 60 cents by 11.7%. Earnings rose 13.6% on a year-over-year basis. In the quarter, operating revenues totaled $3.73 billion, missing the Zacks Consensus Estimate of $4.74 billion by 21.4%. Also, revenues declined 19.2% year over year.

The company projects 2021 earnings in the range of $2.40-$2.54 per share. 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 guidance for 2022 and 2023 is at the bands of $2.55-$2.75 and $2.77-$2.97, respectively.

On May 4, Dominion Energy D reported first-quarter 2021 operating earnings of $1.09 per share, surpassing the Zacks Consensus Estimate by a penny. Moreover, operating earnings were 18.5% higher than the year-ago figure. The quarterly earnings were within the guided range of $1.00-$1.15 per share. Total revenues came in at $3.87 billion, missing the consensus estimate of $4.19 billion by 7.6% and dropping 13.9% from the prior-year quarter’s $4.50 billion.

For second-quarter 2021, Dominion expects operating earnings guidance in the range of 70-80 cents per share. The company reported earnings of 82 cents per share in the year-ago period. It reaffirmed 2021 earnings per share in the range of $3.70-$4.00.

On May 10, Duke Energy Corporation DUK reported first-quarter 2021 adjusted earnings of $1.26 per share, which beat the Zacks Consensus Estimate of $1.24 by 1.6%. The metric was up 10.5% year over year. Total operating revenues came in at $6.15 billion, up 3.4% from the prior year’s $5.95 billion. The reported figure, however, missed the Zacks Consensus Estimate of $6.21 billion by 0.9%.

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 31.7% weight. Its AUM is $12.18 billion and expense ratio is 0.12%. The fund has lost about 2.7% since Apr 20 (as of May 11). It carries a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (read: Yields Head for Big Monthly Gain: ETFs to Win & Lose).

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 27.2%. Its AUM is $4.77 billion and expense ratio is 0.10%. It has declined around 2.7% since Apr 20 (as of May 11). 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 27.8%. Its AUM is $814.7 million and expense ratio is 0.43%. It has lost around 2.6% since Apr 20 (as of May 11). The fund carries a Zacks ETF Rank of 3, 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
 
SPDR-UTIL SELS (XLU): ETF Research Reports
 
VIPERS-UTIL (VPU): ETF Research Reports
 
ISHARS-US UTIL (IDU): ETF Research Reports
 
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