BTC iShares U.S. Utilities ETF

Xcel Energy’s (XEL) capital spending plan and actions to reduce regulatory lags could improve its earnings growth significantly during the next few years.

NRG Energy is a US-based integrated retail electricity and wholesale power-generation firm. The company has 2.5 million residential customers across the US.

Of the 18 analysts tracking Xcel Energy, 13 recommend it as a “hold,” five recommend it as a “buy,” and none recommend it as a “sell.”

Duke Energy stock is currently trading at an EV-to-EBITDA valuation multiple of 12.5x against its five-year historical average of 11.0x.

Utilities borrowed heavily in the post-financial crisis in order to take advantage of the near-zero interest rates. As a result, the leverage of utilities increased significantly

When it comes to climate change risks, investors should look beyond the obvious sectors like fossil fuel and utilities. The VW (VLKAY) scandal has only reaffirmed this.

What makes the utilities unattractive is the fact that interest rates will likely be rising soon. The utilities require a huge amount of infrastructure.

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

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

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

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 […]

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

US utilities continue to trade higher as they approach a second and highly probable 2017 interest rate hike next week.

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

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

Rich valuations and higher rates are a lethal combination for stocks. Over the longer term, multiple expansion and tightening lead to negative returns.

Utility stocks generally trade inversely to Treasury yields. The ten-year Treasury yield fell from 2.37% to 2.33% last week.

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

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

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

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.

On November 9, 2017, SO was trading 3% and 4% above its 50-day and 200-day moving average levels, respectively.

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

Treasury yields become more attractive when interest rates rise, making utilities less competitive than Treasuries in terms of yields.

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

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 […]

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

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

There has been a shift to real estate (VNQ), utilities (XLU), and consumer staple (XLP) stocks in 2014 because investors are looking for equities with bond like characteristics that give them a higher income.

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.

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%.

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

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

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.

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

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

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.

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.

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

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

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.

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 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 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.

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

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.

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.

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.

In this series, we’ll take a look at the top ten largest utility stocks of the S&P 500 Index. We’ll discuss their recent stock performances, valuations, and price targets.

On December 13, 2017, ten-year Treasury yields fell to 2.4%. The ten-year Treasury yields (TLT) reported a yearly high of 2.6% prior to the first rate hike in March 2017.

At $52 billion of market capitalization, Dominion Energy is the third-largest utility holding company among the S&P 500 Utilities (XLU).

AES (AES) has upside potential of 19% from its current price levels of $10.9. Wall Street analysts have given it a price target of $12.9.

NextEra Energy (NEE) declared a dividend per share of $0.98 per share for 4Q17. The ex-dividend date for these dividends is November 22.

SO stock is now trading at an EV-to-EBITDA multiple of 11.3x. Its five-year historical valuation average is ~11.0x. The industry average is ~11.0x.

On July 6, 2017, NRG Energy (NRG) stock was trading at a 1% and 9% premium to its 50-day and 200-day moving average levels, respectively.

After a sustained fall in the last few trading sessions, the Utilities Select Sector SPDR (XLU) seems to be trading deep in the oversold zone.

Due to heavy infrastructure requirements, utilities (XLU) generally carry large amounts of debt on their books.

Utilities tend to carry heavy amounts of debt on their books, and so higher interest rates increase their debt servicing costs.

The Federal Reserve increased its benchmark interest rate by another 25 basis points on June 14, 2017—the second rate hike this year.

Higher interest rates are generally considered unfavorable to utilities because they carry heavy debt on their books.

XLU has managed to gain nearly 12% so far in 2017. By comparison, SPY has gained 9% during the same period.

Treasury yields (TLT) become more attractive when interest rates rise, making utilities (XLU) less competitive in terms of yields.

According to analyst estimates, American Electric Power (AEP) will report earnings of $0.54 per share.

The near-zero interest rate environment has resulted in a low cost of debt, which has motivated more new debt issuances by utilities.

Higher interest rates are likely to make utilities less appealing for conservative investors if the Federal Reserve sticks to its aggressive rate hike plan in 2017.

The near-zero interest rate environment has resulted in a low cost of debt, which has motivated more new debt issuances than new equity issuances.

Why have electricity prices fallen? According to the EIA (U.S. Energy Information Administration), residential customers paid 0.7%, or 12.4 cents, less per kilowatt-hour in the first half of 2016 than in the same period last year. Lower natural gas prices were the main driver behind this reduction. Higher natural gas (UNG) prices in the second […]

PPL has huge exposure to UK operations, as it derives more than 65% of its total earnings.

Assessment of climate risks should be done at an industry sector level to optimize climate risk opportunities.

AEP’s four power plants located in Ohio and Indiana will be sold to a new joint venture of Blackstone and ArcLight Capital Partners for $2.2 billion.

The Guggenheim S&P 500 Equal Weight Utilities ETF (RYU) invests nearly 80% of its portfolio in US utilities and 20% in telecoms.

Since July 2016, VPU has experienced net outflows of nearly $320 million.

NiSource’s (NI) adjusted EPS (earnings per share) grew by 8%–10% historically because its pipeline segment was growing at a double-digit pace.

According to Factset data, around 93% of companies in the utilities (JXI) sector and 80% in the telecom (IXP) sector reported revenues below estimates in the second quarter of 2016.

According to the EIA (Energy Information Administration), residential electricity prices in the US averaged 13 cents per kilowatt-hour in July 2016.

Currently, Duke Energy (DUK) is trading at a 4% and 10% premium to its 50-day and 200-day moving averages, respectively.

On July 15, 2016, NextEra Energy (NEE) was trading at a 4% and 14% premium to its 50-day and 200-day moving averages, respectively.

Institutional investors have increased their positions in AES Corporation (AES) in 2Q16, as compared to where these stood as of March 31, 2016.

Électricité de France’s adjusted return on equity has fallen drastically due to weak power prices and slowing demand.

American Electric Power’s (AEP) Vertically Integrated Utilities segment plays a key role in driving its performance, accounting for more than half of its total operating income.

On February 1, 2016, Standard & Poor’s downgraded Dominion Resources to a credit rating of BBB+ with a stable outlook. The move came after Dominion announced its merger with Questar.

NextEra Energy will announce its quarterly earnings for the period ended December 31, 2015, on January 28, 2016. Its expected earnings equal $1.1 per share.

From 2015–2019, NextEra Energy expects to invest $13–$15.8 billion primarily in projects related to capacity addition and transmission reliability.

NextEra Energy has posted nearly flat revenues in the last eight years. It derives over 70% of its total revenues from its regulated business operations.

SO’s subsidiary Georgia Power said in December that it had reached a settlement with contractors regarding the construction of its Vogtle nuclear plant.

US utilities (IDU) had a dismal performance in 2015 in part due to the fear of higher interest rates.

Public Service Enterprise Group (PEG) is one of the largest and oldest utilities in North America. Its aging infrastructure has become a serious obstacle in its growth over the last couple of years.

Debt profile PPL (PPL) is looking to strengthen its regulated business by investing $18 billion in the next five years. This funding will mainly be done by long-term debt financing. As of September 30, 2015, the company has total debt of $19.7 billion against equity of $10.2 billion. Of this total debt, $17.7 billion is long-term debt. […]

PPL is concentrated in the UK. It manages utility operations through PPL Global, PPL Electric, Louisville Gas and Electric, and Kentucky Utilities.

FirstEnergy’s revenues are primarily derived from electric services provided by ten subsidiaries. The company serves a combined population of ~13.5 million.

Utilities (IDU) wanted to enhance their operational efficiency when their top line grew. However, the earnings failed to impress.

FuelCell Energy (FCEL) reported total revenues of $51.5 million for fiscal 4Q15 compared to $54.4 million for fiscal 4Q14.

In the last few years, Exelon’s (EXC) long-term borrowing has increased and pushed leverage upwards.

American Electric Power has a geographically diversified market combination, with a major chunk of its revenue coming from its homeland Ohio.