|Bid||0.00 x 800|
|Ask||0.00 x 1800|
|Day's Range||49.77 - 50.31|
|52 Week Range||47.37 - 57.23|
|PE Ratio (TTM)||8.28|
|Expense Ratio (net)||0.14%|
Based on the mean target price from Wall Street analysts, NRG Energy (NRG) stock offers a potential upside of 14% for the next 12 months. Analysts have given NRG Energy a mean target price of $38.1, compared to its current market price of $33.5.
In this part of our series, let’s take a look at how institutional investors played out NRG Energy (NRG) recently. Elliott Management, an activist shareholder in NRG Energy, exited its position in the first quarter of 2018 as per the latest 13F filing. NRG stock doubled in the last year after activists introduced a transformation plan. NRG Energy’s better-than-expected earnings in Q1 2018 suggest it’s on track with its transformation plan.
The leading merchant power player, NRG Energy (NRG), continues to look strong on the stock market this year. NRG might continue to trade strong, given its moving averages. On May 22, NRG Energy stock was trading 6% above its 50-day and 20% above its 200-day moving averages.
With a mean target price of $170.40 and a current price of $160.20, renewables titan NextEra Energy’s (NEE) stock has a potential upside of ~6.3% for the next 12 months. RBC raised NextEra Energy’s target price from $166 to $170 last week. Of the 14 analysts covering NextEra Energy, four recommend “strong buy,” eight recommend “buy,” two recommend “hold,” and none recommend “sell.”
Southern Company’s (SO) debt has significantly increased in the last few years, particularly after its AGL Resources acquisition. On March 31, it had net debt of around $50.0 billion, compared with $27.0 billion in 2015. Southern Company’s planned asset sale might improve its debt profile to some extent in future quarters.
Top utility stocks NextEra Energy (NEE) and Southern Company (SO) soared 2.4% and 1.7%, respectively, on May 21 after the latter agreed to sell its Florida-based assets to NextEra Energy. The deal has been valued at $6.5 billion including debt and involves the sale of Southern Company’s Gulf Power and Florida City Gas along with its Stanton and Oleander power plants. The Florida City Gas transaction is expected to close by Q3 2018, while the Gulf Power deal is expected to close by the first half of next year.
NextEra Energy (NEE) stock has a potential upside of almost 9.0% going forward. NextEra Energy has a mean target price of $170.1. Currently, NextEra Energy is trading at $156.5. RBC raised NextEra Energy’s target price from $166.0 to $170.0 last week.
Utilities are trading at a dividend yield of 4.3%—one of the top-yielding sectors among the S&P 500. Broader markets trade at an average yield of close to 2.0%. Recently, utilities’ yield premium to ten-year Treasury yields has almost halved. At around same time last year, utilities were offering a similar yield, while ten-year Treasury yields were close to 2.4%.
On May 18, the Utilities Select Sector SPDR ETF’s (XLU) implied volatility was 12%—lower than its 15-day average. The SPDR S&P 500’s implied volatility was close to 10%—lower than its 15-day average of 11%.
According to a recent 13F filing, Goldman Sachs is the biggest institutional investor in the Utilities Select Sector SPDR ETF (XLU) with 11.5% of its total outstanding shares as of March 31. Goldman Sachs bought net 5.3 million shares, which grew the total number of shares to more than 16 million during the quarter.
US utility stocks have been trading very weak this year. The Utilities Select Sector SPDR ETF (XLU) entered the “oversold” zone last week with its RSI (relative strength index) at 25.
The strength in Treasury yields continued to push US utility stocks lower last week. The Utilities Select Sector SPDR ETF (XLU), which tracks the S&P 500 Utilities Index, fell 2.8% and broader markets fell 0.6% last week.
The Federal Reserve released the April industrial production report on May 16. Tracking changes to the industrial production index helps us assess future changes to the business cycle. Industrial production continued to increase in the last few months except for a slump in January, which was a known seasonality.
Xcel Energy (XEL), based in Minneapolis, Minnesota, is one of the largest regulated utilities in the country. Let’s look at institutional investors’ activity in the first quarter.
According to its latest 13F filing, Elliott Management, the activist shareholder whose involvement largely doubled NRG Energy (NRG) stock in the last year, has exited NRG. In the first quarter, it sold 10 million shares of NRG, the largest merchant power player.
Utility stocks—generally called widow and orphan stocks—are one of the poorest performing sectors across the broader markets so far this year. They might continue to trade weakly, given the aggressive stance of the Fed. Along with a strong possibility of another quarter-point rate hike in June, traders are predicting three more rate hikes during the year. With the outlook for utilities not so exciting, we’ll see how institutional investors have recently played out their utilities (IDU) (VPU) holdings.
The stock of New Jersey–based water utility American Water Works (AWK) has a potential upside of 11% for the next year. Wall Street analysts have given it a mean price target of $91.7 compared to its current market price of $81.7. Among the 14 analysts tracking American Water Works, three have currently recommended “strong buys” on the stock, while four have recommended “buys.” Seven analysts have recommended “holds” on the stock, while none have rated the stock as a “sell” as of May 15.
According to Wall Street analysts’ consensus, PG&E Corporation (PCG) has a mean price target of $49.0 compared to its current market price of $43.2. This difference indicates a potential gain of 13.5% for the stock over the next year.
Pennsylvania-based PPL Corporation (PPL) has a mean price target of $32.2 compared to its current market price of $27.7. Peer Xcel Energy (XEL) has an estimated upside potential of more than 6% for the next year. Analysts have given it a mean price target of $47.83 against its current market price of $45.0.
The utilities sector, one of the most sensitive sectors to interest rate hikes, has been subdued this year. The Utilities Select Sector SPDR ETF (XLU), which tracks the S&P 500 Utilities Index, has fallen more than 4% year-to-date, while the S&P 500 has risen 3%. Strength in Treasury yields and faster-than-expected interest rate hikes have weighed on utilities this year.
US utility stocks slipped 0.8% on May 15 after ten-year Treasury yields peaked at 3.1%—a seven-year high. Broader markets also corrected 0.7% during the day. A strong increase in US retail sales in April highlighted more economic growth in the country.
Xcel Energy (XEL) is a pure-play regulated utility valued at $22.9 billion. Xcel Energy serves more than 5 million customers mainly in Minnesota, Colorado, and Michigan. The stock has fallen more than 6% year-to-date. Xcel Energy’s large exposure to regulated operations facilitates stable earnings and eventually stable dividends. To learn more, read How Xcel Energy’s Dividend Profile Compares to Peers.
On May 11, the implied volatility of the Utilities Select Sector SPDR ETF (XLU) was 13%, near its 15-day average. The SPDR S&P 500’s implied volatility was close to 10%, lower than its 15-day average of 12%.
Consolidated Edison (ED) is among the few largest regulated utilities in the country. So far in 2018, the stock has fallen almost 10%. Tax reforms, valuation concerns, and rising interest rates pulled utility stocks down in the last six months. The following chart shows the comparative stock price movement of Consolidated Edison along with broader utilities (XLU) (VPU).