BTC iShares U.S. Utilities ETF

Despite valuation concerns, utility stocks seem relatively well placed at the moment, especially going into October, compared to broader markets.

Utility stocks have outperformed broader markets. Over the past 12 months, utilities (XLU) have returned 19% including dividends, while the S&P 500 has returned 9%.

Utility stocks, generally seen as bond substitutes due to their stable dividends, have rallied significantly.

The benchmark ten-year Treasury yields closed at 2.5% last week. Treasury yields and utility stocks usually trade inversely to each other.

The Utilities Select Sector ETF (XLU) briefly crossed ~$59.0 last week and then came down.

Utilities have been an effective hedge against market uncertainty. They have also beaten broader markets in the longer term.

Currently, the Utilities Select Sector SPDR ETF (XLU) is trading at $58.2 after hitting an all-time high of $58.7 last week.

In this series, we’ll take a look at what Wall Street analysts currently think of some of the big utility names.

All the stocks under consideration in this series are currently trading at their respective multiyear highs.

NextEra Energy (NEE), NiSource (NI), and CMS Energy (CMS) have beaten their peers as well as the broader markets in terms of total returns in the last five years.

Utilities notably outperformed broader markets over the past 12 months.

FirstEnergy (FE) stock was one of the top performers among utilities last year. In the last 12 months, the stock has risen ~25%.

FirstEnergy (FE) stock looks to be trading at an attractive valuation, considering its lower valuation multiple against its historical average and peers’ averages.

PPL (PPL) is trading at a forward PE ratio of 13x based on analysts’ EPS estimates for 2019. PPL appears to be trading at a discounted valuation.

Most of the top institutional investors increased their existing holdings in Duke Energy (DUK)—the largest regulated utility in the country.

FirstEnergy (FE) stock is trading close to its 52-week high. The stock continues to look strong based on its simple moving average levels.

Duke Energy (DUK), the second-largest utility by market cap, is scheduled to report its fourth-quarter and fiscal 2018 earnings on February 14.

Sempra Energy is currently trading at a forward PE ratio above 19x based on analysts’ earnings estimates for the next 12 months.

On January 29, wildfire-stricken PG&E filed for voluntary Chapter 11 bankruptcy protection. The utility faces ~$30 billion in potential liabilities.

The benchmark ten-year Treasury yield trended lower and changed from 2.68% to 2.66% last week.

Utilities played out well last year amid broader markets’ volatility. They returned more than 6%, while the S&P 500 returned -6% last year.

Utilities have outperformed broader markets in 2018. Including dividends, broader utilities have returned ~6%, while SPY has returned -8% YTD.

The Utilities Select Sector SPDR ETF (XLU), which represents S&P 500 utilities, hit a 52-week high of $56.80 on December 4.

Dominion Energy (D), the third largest utility stock by market cap in the country, is currently trading at a dividend yield of 4.5%, notably higher than the broader utilities’ average.

Utilities at large are up almost 3% so far this year, marginally outperforming broader markets. Investors turned to the relatively safe utilities lately amid trade war tensions and a recent broad-market selloff.

Southern Company (SO), the fourth-biggest utility by market capitalization, released its third-quarter earnings on November 7.

Duke Energy (DUK), the second-largest utility by market cap, reported its third-quarter earnings today.

Southern Company (SO), one of the largest regulated utilities, is expected to report its third-quarter results on November 7.

Utilities (XLU) have returned more than 5% and have outperformed broader markets in 2018.

The Power segment’s revenues declined 19% in the second quarter to $7.5 billion from $9.4 billion in the same period in 2017.

PPL reported better-than-expected earnings in the second quarter. The company’s earnings grew 6% compared to the same period last year.

The Vanguard Group is the largest institutional investor in renewables titan NextEra Energy (NEE).

Last week, Jamie Dimon said that investors should be prepared to deal with ten-year Treasury yields reaching 5% or higher.

NRG Energy (NRG), which saw the largest stock rally among utilities last year, reported its second-quarter financial results today.

Duke Energy (DUK), the second largest utility by market cap, reported its second-quarter earnings results on August 2.

FirstEnergy reported its second-quarter financial results on July 31 after the markets closed. The company reported an adjusted EPS of $0.62.

Xcel Energy (XEL) is set to report its Q2 2018 results on July 26. Analysts expect EPS of $0.47 compared to $0.45 in 2Q 2017.

PPL Corporation (PPL) stock has rallied more than 11% in the last month, outperforming utilities at large.

Utility stocks remained strong even after the Fed delivered a rate hike last month—the second rate hike in 2018.

Duke Energy’s (DUK) earnings in the longer term seem well placed, which might enable the targeted 4%–6% dividend growth in the next few years.

PPL Corporation (PPL) is currently trading at a dividend yield of 5.7%, one of the highest in the sector.

For the second quarter, SCANA will pay a dividend of $0.124 per share to shareholders of record on July 10.

The total industry capacity utilization in May has fallen from the upward revised April reading of 78.1 to 77.9 in May.

Based on analysts’ 12-month mean target price of $72.10, Dominion Energy (D) stock has an upside of ~12% to its current market price of $64.

According to the Fed’s industrial production and capacity utilization report, capacity utilization increased from 77.6% in March to 78% in April.

Utility stocks—generally called widow and orphan stocks—are one of the poorest performing sectors of the broader markets so far this year.

Among the 14 analysts covering PEG, three recommend it as a “strong buy,” six recommend it as a “buy,” and five recommend it as a “hold.”

According to analysts, American Electric Power stock has a mean target price of $73.66—compared to its current market price of $66.27.

The Atlanta-based second-largest regulated utility company, Southern Company (SO), reported its 1Q18 earnings today.

Currently, NRG Energy (NRG) is trading at an EV-to-EBITDA valuation of ~12x—compared to its five-year historical average valuation of 11x.

NextEra Energy (NEE), the biggest utility by market capitalization in the country, reported its1Q18 earnings on April 24.

The total industry capacity utilization in March increased from 77.7% in February to 78.0% in February.

The ten-year Treasury yield has risen significantly this year and peaked at 3.0% last week, its highest level in the last four years.

Dominion Energy (D) stock continues to look weak in the near future considering its moving averages.

There hasn’t been any respite for Dominion Energy (D) investors. The stock has corrected almost 20% YTD.

The ten-year Treasury yield witnessed a notable drop late last week due to the trade clashes between China and the United States.

According to the Federal Reserve, total industry capacity utilization increased 1.3% from 77.4% in January 2018 to 78.1% in February.

The Utilities Select Sector SPDR ETF (XLU) returned more than 1%, while broader markets returned 18% in the last one year.

On March 15, 2018, Dominion Energy stock fell to $70.9—a new 52-week low. Dominion Energy stock entered the “oversold” zone with its RSI at 29.

After correcting more than 12% in the last three months, US utilities continue to look weak,

NRG Energy (NRG) reported its 4Q17 and fiscal 2017 earnings on March 1, 2018. The company reported adjusted earnings of $0.25 per share.

Dividend outlook Let’s discuss what could affect Xcel Energy’s (XEL) dividends. Xcel Energy aims to increase its long-term per-share earnings by 5%–6%, bringing its targeted per-share dividend growth to similar levels. Xcel Energy’s increased focus on expanding its renewables capacity and multiyear rate plans could boost its earnings over a longer term. Xcel Energy is planning to invest ~$20 […]

Xcel Energy’s dividend statistics Let’s take a look at Xcel Energy’s (XEL) dividend profile. The company, which has raised its dividends in the last 15 consecutive years, had a payout ratio of 63% in 2017. Payout ratios represent how much of companies’ profits are distributed to shareholders in the form of dividends. Utilities pay a large portion […]

The Vanguard Group added net 0.46 million shares of Public Service Enterprise Group (PEG) in 4Q17.

In the last one-year period, NEE’s total returns came in at 27.0%.

UBS Financial Services is the biggest institutional investor in XLU. UBS held 11.66 million shares of XLU as of December 31, 2017.

US utilities were trading at a dividend yield premium of ~180 basis points–200 basis points to benchmark Treasury yields during mid-2017.

The Federal Reserve’s report indicated that industrial production fell 0.1% in January as compared to a 0.9% increase in December.

PG&E has witnessed immense volatility in the last few months. On February 9, the implied volatility was ~40%—higher than its 15-day average.

Duke Energy’s (DUK) earnings in the longer term seem well placed, which might facilitate the targeted 4%–6% dividend growth.

Top utility stocks Duke Energy (DUK) and Southern Company (SO) are trading at an EV-to-EBITDA valuation multiple of 11.4x and 10.5, respectively.

US utilities have been trading weak for the last few months. The Utilities Select Sector SPDR ETF (XLU) hit its 52-week low of $47.37 on February 6, 2018.

The biggest constituent of the SPX Utilities, NextEra Energy (NEE) is trading at a valuation multiple beyond 14x—higher than its historical average.

Dominion Energy agreed to buy troubled SCANA for $7.9 billion in a stock-for-stock deal in January this year.

Though it was one of the top-rallying stocks of the last year, Xcel Energy (XEL) currently seems weak considering its moving average levels.

On January 26, 2018, the Utilities Select Sector SPDR ETF (XLU) was trading 4% and 5% below its 50-day and 200-day moving average levels.

NextEra Energy (NEE) reported its 4Q17 financial results on January 26, 2018. NextEra Energy reported total operating revenues of $4.01 billion for 4Q17.

The San Jose–based California Water Service Group (CWT) is currently trading at a dividend yield of 1.6%. It has increased its per-share dividends for the past 50 consecutive years.

In this series, we’re analyzing dividend profiles for utilities that have increased their dividends for more than consecutive 40 years.

In the last year, American Electric Power returned 21%—compared to broader utilities’ average returns of ~11%. During the same period, SPY returned 22%.

The second-largest utility by market cap, Duke Energy (DUK), has been on a downtrend in 2018. In the last month, DUK has fallen nearly 12%.

NRG Energy (NRG) stock was trading at an EV-to-EBITDA valuation of 13x—higher than its five-year historical valuation.

NRG Energy (NRG) stock was one of the top gainers among the S&P 500 last year. So far in 2018, it has lost more than 5%.

According to analysts’ estimates, NextEra Energy (NEE) will report EPS (earnings per share) of $1.31 for the quarter ended December 31, 2017.

AES Corporation (AES) declared a per share dividend of $0.13 last month.

Georgia-based Southern Company (SO) currently offers a dividend yield of 5.2%, the highest among top SPX utilities.

Utilities’ dividend yields have started looking even more attractive after their recent fall.

Treasury yields (TLT) rose significantly last week on stronger-than-expected inflation data for December 2017.

Southern Company stock has shown tremendous weakness recently with a fall of over 12% in the last one month. Broader utilities (XLU) (IDU) fell 10% in the same period.

Sempra Energy (SRE) has a mean target price of $121.9—compared to its current market price of $107.2. It shows an upside potential of 14% going forward.

The stock of Exelon Corporation (EXC), the largest hybrid utility and the largest utility by revenue, has a mean price target of $43.2.

Given its rise of more than 130% last year, NRG Energy (NRG), the largest merchant power stock, holds the top spot among the most rallied utility stocks.

The most globally diversified utility, AES Corporation (AES), has a potential upside of more than 18% over the next 12 months.

According to analysts’ consensus, FirstEnergy stock has a mean price target of $36.2, which indicates an implied gain of 19% over the next 12 months.

According to Wall Street analysts’ consensus, PG&E Corporation (PCG) has a mean price target of $55.3 compared to its current market price of $45.2.

Duke Energy (DUK) is one of the top-yielding utilities in the S&P 500 Utilities Index (XLU). Currently, it’s trading at a dividend yield of 4.0%.

SCANA (SCG) stock is currently trading at a significant discount relative to peers. On December 22, it was trading at an EV-to-EBITDA valuation multiple below 8x.

PG&E (PCG) stock was leading the broader utilities prior to the fires in California.

On December 19, PPL stock was trading at an EV-to-EBITDA multiple near 10.5x. Its five-year historical average and industry average multiples are near 11x.

Historically, utilities’ price-to-earnings multiples have been ~14.0x–15.0x. However, they are currently trading close to 20.0x.