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Utility Stocks: Which Quantitative Indicators Could Be Key?

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Utility Stocks: Which Quantitative Indicators Could Be Key? PART 1 OF 3

NRG Energy’s Implied Volatility Is Rising

Utility stocks with high implied volatilities

On April 28, 2017, NRG Energy (NRG) had the highest implied volatility among the stocks in the Utilities Select Sector SPDR ETF (XLU). NRG Energy’s implied volatility was 36.9% on April 28—0.7% above its 15-day average.

NRG Energy&#8217;s Implied Volatility Is Rising

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Now, let’s take a look at the implied volatilities of other utility stocks as of April 28, 2017.

  • AES (AES) – 23.3%, 3.7% below its 15-day average
  • Pinnacle West Capital (PNW) – 20.1%, 0.4% below its 15-day average
  • Scana (SCG) – 19.1%, at par with its 15-day average
  • Exelon (EXC) – 18.8%, 0.4% above its 15-day average

NRG Energy’s implied volatility rose the most compared to its 15-day average among the five utility stocks with high implied volatilities. On April 24, 2017, it announced a power purchase agreement with Hawaiian Electric. Hawaiian Electric will purchase power produced by NRG Energy’s solar facility in Kawailoa. On the same day, NRG Energy’s implied volatility rose 2.2% and the stock rose 1.3%.

On April 12, 2017, NRG Energy announced that it will report its 1Q17 earnings on May 2, 2017. Analysts expect NRG Energy to report a loss of $0.25 per share in 1Q17. We’ll analyze NRG Energy’s stock price returns in the next part of this series. We’ll discuss its short interest stock in the final part.

Utility stocks with low implied volatilities

On April 28, 2017, Southern Company (SO) had the lowest implied volatility of all the utility companies that make up XLU. Its implied volatility was 12%—9.7% below its 15-day average.

Let’s look at the other utility stocks with low implied volatilities as of April 28, 2017:

  • Duke Energy (DUK) – 12.4%, 6.2% below its 15-day average
  • American Electric Power Company (AEP) – 12.4%, 7.2% below its 15-day average
  • PPL (PPL) – 12.8%, 8.7% below its 15-day average
  • Consolidated Edison (ED) – 13.1%, 7% below its 15-day average

Broadly, the low implied volatility utility stocks listed above are larger companies with relatively stable operations compared to higher implied volatility stocks.

Large movements or expectations of large movements in stock prices can cause implied volatilities to rise. In the next part of this series, we’ll take a look at the returns of the stocks mentioned above.

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