Utilities largely underperformed the broader markets this year, mainly due to strength in Treasury yields. Trade war fears have boosted utility stocks ~10% since early June despite the Fed’s second rate hike this year. In this series, we’ll see how top utilities fared so far this year and how they’re placed for the future. The largest utilities by market cap—NextEra Energy (NEE), Duke Energy (DUK), Southern Company (SO), and Dominion Energy (D)—form ~33% of the Utilities Select Sector SPDR ETF (XLU).
The Fed continues to be aggressive with rate hikes, targeting two more rate increases this year. How utility stocks react in this scenario amid trade war concerns is an important indicator to watch going forward.
NEE leads, D lags
NextEra Energy stock has been beating its peers and even the broader markets significantly for the last couple of years. Its better-than-expected earnings in the past couple of years have largely fueled its rally. It has risen 10%, while XLU has risen ~2% so far this year. Duke Energy (DUK), the second-largest utility by market cap, has been weak this year, falling ~7% year-to-date.
Southern Company (SO), the Georgia-based regulated utility, recently witnessed its power plant snags reawakening. In its Q2 2018 earnings, the utility announced that its Plant Vogtle, a big-ticket nuclear power plant, was facing another cost increase of $1.1 billion. The stock has been extremely weak since then and has fallen 7% year-to-date.
Dominion Energy (D) comes in last among these four utilities, falling ~12% so far this year. Its ongoing acquisition of SCANA (SCG) and regulatory concerns regarding its MLP Dominion Midstream Partners (DM) pushed the stock lower.