How Are Utility ETFs Reacting to Decent Q1 Earnings Results?

The utility sector has come up with mostly encouraging results so far this earnings season. Of the 59.3% S&P companies in the sector that have reported, 75% beat the bottom line and 81.3% surpassed the top-line estimates. For these companies, earnings rose 3.9%, while revenues increased 7.3% year over year, per the Earnings Trends issued on May 4.

The energy space has remained a prime investment area holding the interest of market participants since the beginning of the year. Reopening global economies, accelerated coronavirus vaccine rollout and improving labor markets were already adding to the strength in the sector. Going on, the rally in oil prices due to the Russia-Ukraine crisis has added to the momentum in the sector.

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 Apr 21, NextEra Energy NEE reported first-quarter 2022 adjusted earnings of 74 cents per share, surpassing the Zacks Consensus Estimate of 69 cents by 7.3%. Earnings rose 10.5% on a year-over-year basis. In the quarter, operating revenues totaled $2.89 billion, missing the Zacks Consensus Estimate of $5.18 billion by 44.2%. Moreover, revenues were down 22.4% year over year.

The company maintained its 2022 earnings expectation to the range of $2.75-$2.85 per share. For 2023, NextEra Energy continues to expect earnings per share in the range of $2.93-$3.08. For 2023 through 2025, NextEra Energy still expects earnings per share to grow roughly 6-8% per year.

On May 5, Dominion Energy D reported first-quarter 2022 operating earnings of $1.18 per share, missing the Zacks Consensus Estimate by a penny. However, operating earnings were 8.3% higher than the year-ago figure. The quarterly earnings were within the guided range of $1.10-$1.25 per share. Total revenues came in at $4.28 billion, missing the consensus estimate of $4.29 billion but, climbing 10.6% from the prior-year quarter’s $3.87 billion.

Dominion initiated its second-quarter 2022 operating earnings guidance in the range of 70-80 cents per share. The company maintained its 2022 earnings per share view in the range of $3.95-$4.25.

On May 9, Duke Energy Corporation DUK reported first-quarter 2022 adjusted earnings of $1.30 per share, which lagged the Zacks Consensus Estimate of $1.34 by 3%. However, the metric was up 3.2% year over year. Total operating revenues came in at $7.13 billion, up 16% from the prior year’s $6.15 billion. The reported figure outpaced the Zacks Consensus Estimate of $6.41 billion by 11.2%.

Duke Energy has reiterated its 2022 adjusted EPS guidance. The company expects to generate adjusted earnings per share in the range of $5.30-$5.60.

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 29 holdings, with the above-mentioned companies carrying 28.9% weight. Its AUM is $15.72 billion and its expense ratio is 0.10%. The fund has lost about 6.6% since Apr 21 (as of May 10). It carries a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (read: Yields Hits 3% First Time Since 2018: ETFs to Gain or 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 64 holdings, with the above-mentioned companies constituting 26.6%. Its AUM is $6.13 billion and its expense ratio is 0.10%. It has lost around 7.8% since Apr 21 (as of May 10). 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 44 holdings, with the above-mentioned companies constituting 24.3%. Its AUM is $971.5 million and its expense ratio is 0.41%. It has declined around 7.6% since Apr 21 (as of May 10). 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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