|Bid||0.00 x 2900|
|Ask||0.00 x 1000|
|Day's Range||111.44 - 112.55|
|52 Week Range||104.82 - 125.54|
|PE Ratio (TTM)||N/A|
|Expense Ratio (net)||0.10%|
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.”
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.
Capacity utilization in US industries and industrial production data are published by the Federal Reserve every month. There are only a few economic indicators that act as a precise leading indicator for the US economy, and capacity utilization is one of them.
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.
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 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.
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.
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).
The weakness in utility stocks last week has pushed them below their 50-day moving average levels. The Utilities Select Sector SPDR ETF (XLU) is currently trading on par with its 50-day moving average and 4% lower than its 200-day moving average. It looks weak given its moving averages, and $52.53 is expected to act as a resistance for it going forward. It’s currently trading at $50.38.
On April 24, PPL (PPL) stock was trading at par to its 50-day moving average and 16% below its 200-day moving average level. The significant discount to this level highlights the weakness in PPL stock. If PPL crosses above its 50-day moving average of $28.4 and continues to trade above this level, there could be some strength in the stock.
Are Tax Cuts and Deregulation Boosting Industrial Production? The Federal Reserve publishes capacity utilization data along with industrial production data for US industries every month. Capacity utilization change is one of the few economic indicators that acts as a leading indicator for the economy and helps in predicting changes to the US business cycle.
NextEra Energy (NEE), the biggest utility by market capitalization in the country, reported its 1Q18 earnings on April 24. The company’s strong performance continued in 1Q18. NextEra Energy reported an adjusted EPS (earnings per share) of $1.94 for the reported quarter and beat consensus estimates. In the same quarter last year, NextEra Energy reported an EPS of $1.75.
Weekly Review: What Could Power On Utility Stocks? As we discussed previously, the ten-year Treasury yield has risen significantly this year and peaked at 3.0% last week, its highest level in the last four years. Rising interest rates are a double whammy for utility investors.
Utilities, the rate sensitives, stumbled in the last few months as the Fed hinted at a faster-than-expected interest rate hike pace in 2018. In the trailing 12 months, utilities at large (XLU) returned -0.5%, while broader markets returned more than 16% during the same period.
Currently, the Utilities Select Sector SPDR ETF (XLU), which tracks the S&P 500 Utilities Index, is trading marginally above its 50-day moving average and 5% lower than its 200-day moving average level. XLU’s 200-day moving average level around $52.7 will likely act as resistance for the ETF going forward. On April 13, 2018, XLU closed at $49.8.
Sempra Energy (SRE), among very few other utilities in the sector, is aiming for above-average earnings growth over the next few years, which could enable higher dividend growth than the industry average. Its diversified business mix bodes well for long-term earnings growth. Sempra is expected to close its acquisition of Texas-based Oncor Electric by 2Q18, which could accelerate its earnings growth as well.
FirstEnergy (FE) has been no exception. In the last three years, FirstEnergy’s revenues have fallen 3% compounded annually. Given FirstEnergy’s plans to become a pure-play regulated utility, its revenues could stabilize going forward.
FirstEnergy (FE) is heavily dependent on coal for its power generation. Almost 60% of its power comes from coal, while nuclear power accounts for 25% of its total generation. FirstEnergy declared late last month that it plans to close three nuclear power plants in Ohio and Pennsylvania, ~4,000 MW (megawatts) of its total capacity, by 2021 due to unprofitability.