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Utility Stocks: Reviewing Key Quantitative Insights for Investors

PART:
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Utility Stocks: Reviewing Key Quantitative Insights for Investors PART 1 OF 3

Analyzing Utility Stocks’ Implied Volatilities

Utility stocks with high implied volatilities

On January 11, 2017, NRG Energy (NRG) had the highest implied volatility among the utility companies that make up the Utilities Select Sector SPDR ETF (XLU).

Analyzing Utility Stocks’ Implied Volatilities

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NRG Energy’s implied volatility was 40.7% on January 11. Its 15-day average implied volatility was 41.4%. Its current volatility is 1.5% lower than its 15-day average. Wall Street analysts expect NRG Energy to report a loss of $0.17 per share in 4Q16. It could be fueling high implied volatility in the stock.

Let’s take a look at the implied volatilities of other utility stocks on January 11, 2017:

  • AES’s (AES) implied volatility was 26.4%—about 1% lower than its 15-day average.
  • FirstEnergy’s (FE) implied volatility was 22.3%—1.1% lower than its 15-day average.
  • Exelon’s (EXC) implied volatility was 21.8%—2.7% lower than its 15-day average.
  • DTE Energy’s (DTE) implied volatility was 20.4%—4.5% more than its 15-day average.

The rise in DTE Energy’s implied volatility compared to its 15-day average is the largest among the five utility stocks with the highest implied volatilities. Its implied volatility rose 3% on January 9, 2017. On the same day, the stock fell 0.8%. On January 9, 2017, UBS changed its recommendation to “neutral” from “buy.”

Utility stocks with low implied volatilities

On January 11, Southern Company (SO) had the lowest implied volatility of all the utility companies that make up XLU. Its implied volatility was 15.4%. Its 15-day average implied volatility was 15.9%. Its current implied volatility is 3.1% lower than its 15-day average.

Let’s look at the other utility stocks with low implied volatilities on January 11:

  • Xcel Energy’s (XEL) implied volatility was 16.2%—4.5% lower than its 15-day average.
  • Duke Energy’s (DUK) implied volatility was 16.4%—1.6% lower than its 15-day average.
  • NiSource’s (NI) implied volatility was 16.9%—8.1% lower than its 15-day average.
  • Dominion Resources’ (D) implied volatility was 16.9%—2.4% more than its 15-day average.

Large movements or expectations of large movements in stocks’ prices can cause their implied volatilities to rise. In the next part, we’ll discuss the returns of the above stocks.

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