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Why Regulated Utilities Are Outperforming Broader Equities in 2016

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Regulated utilities in 2016

The utilities sector is one of the top performing sectors of 2016 so far. Quarterly earnings and the slower-than-expected pace of the Fed’s projected interest rate hike have fueled the rally in utilities this year. However, among the utilities, the rally in mid-cap regulated utilities was much steeper than that of large-cap and many unregulated utilities.

The utilities we’ve chosen for this analysis are Consolidated Edison (ED), PPL Corporation (PPL), Xcel Energy (XEL), and Edison International (EIX)—all of which have displayed a striking climb so far in 2016.

Why Regulated Utilities Are Outperforming Broader Equities in 2016

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The graph above precisely depicts how mid-cap utilities have been outperforming broader utilities (XLU). We’ve selected these utilities based on their focus on regulated operations and their market capitalization. The market capitalization of these utilities ranges from $20 billion–$25 billion while nearly 95% of their total income comes from regulated operations.

Market performance

So far in 2016, XLU has managed to gain by nearly 9% while Consolidated Edison rose by 16% in the same period. Calendar 2015 was very dull for utilities (JXI), and the sector witnessed a dismal performance. The possible undervaluation also made utilities attractive at the beginning of 2016. For example, Xcel Energy and PPL Corporation have gained by 14% and 11%, respectively, and Edison International has risen by 20% in 2016.

In this series, we’ll look at the comparative performances of these exclusive regulated utilities from an investment perspective. We’ll also analyze their operating profitability, dividend yields, valuations, and broker recommendations.

Let’s start with the returns of the individual companies.

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