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Why Investors Are Bearish on Certain Utility Stocks

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NRG Energy

As of October 13, 2016, NRG Energy (NRG) has the highest short interest-to-equity float ratio among utility stock companies that are part of the Utilities Select Sector SPDR ETF (XLU) at 5.1%. One month ago, the ratio was 5.0%. Three months ago, it was 5.9%.

As we saw in Part 1 of this series, NRG Energy was also the utility stock with the highest implied volatility.

In the last three months, the stock has fallen 26.4%—the most among the utility stocks in the above table. The short interest-to-equity float ratio fell 13.4% during this period.

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Apart from the sharp fall in the stock price, the relatively high short interest in NRG Energy can also help explain why it has one of the highest implied volatilities in the utility sector. Stocks can move wildly as bulls and bears slug it out. Prices can also move violently when shorts have to unexpectedly cover.

NRG Energy’s net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio is 6.5x. Its cash and cash equivalents were $1.8 billion as of 2Q16.

SCANA

SCANA’s (SCG) short interest-to-equity float ratio is 3.8%. One month ago, it was 3.3%. Three months ago, it was 4.2%. In the last three months, the stock fell 5.2%. Its short interest-to-equity float ratio fell 7.4%. SCANA’s net debt-to-EBITDA ratio is 4.3x. Its cash and cash equivalents were $86 million in 1Q16.

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Consolidated Edison

Currently, Consolidated Edison’s (ED) short interest-to-equity float ratio is 3.6%. One month ago, it was 3.5%. Three months ago, it was 4%. Its net debt-to-EBITDA ratio is 3.7x. Its cash and cash equivalents were $862 million in 2Q16. The stock has fallen 7.8% in the last three months, while its short interest-to-equity float ratio fell 9.3%

NiSource 

NiSource’s (NI) short interest-to-equity float ratio is 3.6%. One month ago, it was 2.7%. Three months ago, it was 2.8%. Its net debt-to-EBITDA ratio is 5.1x. Its cash and cash equivalents were $28 million in 2Q16. In the last three months, the stock has fallen 12%. Its short interest-to-equity float ratio rose 28.3%.

WEC Energy

WEC Energy’s (WEC) short interest-to-equity float ratio is 3.5%. One month ago, it was 3.7%. Three months ago, it was 3.2%. In the last three months, the stock has fallen 9.1%. Its short interest-to-equity float ratio rose 10.8%. Its net debt-to-EBITDA ratio is 5.3x. WEC Energy’s cash and cash equivalents were $32.1 million in 2Q16.

CenterPoint Energy (CNP) and Duke Energy’s (DUK) short interest-to-equity float ratios are 2.4% and 2.7%, respectively.

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