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Utility Stocks: Implied Volatility and Short Interest Are Vital

PART:
1 2 3
Part 3
Utility Stocks: Implied Volatility and Short Interest Are Vital PART 3 OF 3

Short Interest Could Impact Utility Stocks

PPL’s short interest-to-equity

On March 17, 2017, PPL Corporation (PPL) had a short interest-to-equity float ratio of 16.4%—the highest among the utility stocks that make up the Utilities Select Sector SPDR ETF (XLU).

Short Interest Could Impact Utility Stocks

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In the past three months, PPL stock rose 6.8%, while its short interest-to-equity float ratio has risen 8.6x. Its net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio is 4.7x.

In the last four quarters, PPL’s revenue rose 2.9%, while its operating profit rose 15.7%. Its operating profit margin is 40.5%.

NRG Energy

NRG Energy (NRG) has a short interest-to-equity float ratio of 4.2%. In the past three months, NRG stock rose 46.8%—the most among utility stocks with high short interest. Its short interest-to-equity float ratio has fallen 44% in the last three months. Its net debt-to-EBITDA ratio is 6.4x. We discussed NRG Energy’s earnings trend in Part 2 of this series.

As we saw in the first two parts of this series, NRG Energy had the highest implied volatility among the utility stocks that make up XLU. Its high short interest could explain why it has high implied volatility. High short interest in a stock reflects the market’s expectation of a large fall, which can cause a stock’s implied volatility to rise.

Scana

Scana’s (SCG) short interest-to-equity float ratio is 4.1%. In the last three months, Scana stock fell 8.3%, while its short interest-to-equity float ratio rose 3.7%. Its net debt-to-EBITDA ratio is 4.1x. In the last four quarters, Scana’s revenue rose 10.6%, while its operating profit rose 18.2%. Its operating profit margin is 27.3%. It’s also one of the high implied volatility stocks that we discussed in Part 1 of this series.

Consolidated Edison

Consolidated Edison’s (ED) short interest-to-equity float ratio is 3.4%. Its net debt-to-EBITDA ratio is 4.1x. Its stock rose 5.5% in the last three months, while its short interest-to-equity float ratio fell 8.9%.

In the last four quarters, Consolidated Edison’s revenue hasn’t changed, although its operating profit rose 19.8%. Its operating profit margin is 20.5%.

Entergy

Entergy’s (ETR) short interest-to-equity float ratio is 3.3%. Its net debt-to-EBITDA ratio is 3.5x. In the last three months, the stock rose 3.1%, while its short interest-to-equity float ratio fell 11.7%. In the last four quarters, Entergy’s revenue rose 5.5%, while its operating profit rose 2.7x. Its operating profit margin is 16.8%.

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