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Utility Stocks: Reviewing Key Quantitative Insights for Investors

PART:
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Part 2
Utility Stocks: Reviewing Key Quantitative Insights for Investors PART 2 OF 3

What’s behind Utility Stocks’ High Implied Volatilities?

Utility stocks with high implied volatilities

NRG Energy (NRG) rose 45.5% in the past year. It has the highest implied volatility of all the utility companies that make up the Utilities Select Sector SPDR ETF (XLU). In the past five days, NRG Energy rose 8.2%.

What’s behind Utility Stocks’ High Implied Volatilities?

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The above chart shows the one-year and last five-day returns of the stocks we identified in the previous part as having high and low implied volatility. It shows how high volatility stocks moved sharper compared to low volatility stocks.

While NRG gained the most in the last five days, FirstEnergy (FE) lost the most during this period. AES (AES) rose 1.8% and Exelon (EXC) fell 0.3%.

NRG Energy (NRG) gained the most in the past year among the list of high implied volatility utility stocks. In the last four quarters, NRG’s revenue fell 10.9%, while its operating income rose 84.8%. NRG’s operating profit margin is 9.8%—compared to the industry median of 24%.

FirstEnergy was the only loser in the past year among the list of high implied volatility utility stocks. In the last four quarters, FirstEnergy’s revenue rose 4%, while its operating profit fell 5.2%. FirstEnergy’s operating profit margin is 17.6%—compared to the industry median of 20.4%.

Returns of utility stocks with low implied volatilities

As we saw in the previous part, Southern Company (SO) has the lowest implied volatility of all the utility companies that are part of XLU. Southern Company gained the least in the past year among the list of low implied volatility utility stocks. In the last four quarters, Southern Company’s revenue rose 13.5%, while its operating profit rose 16.5%. Its operating profit margin is 27.5%—compared to the industry median of 20.4%.

In the next part of this series, we’ll look at the utility stocks with the highest short interest-to-equity float ratios.

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