4 Utility ETFs Gaining Despite Lackluster Q4

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Includes: D, DUK, FUTY, IDU, NEE, VPU, XLU
by: Zacks Funds

At the tail end of the earnings season, the retail and utility sectors are the only ones with a number of companies yet to report results. As per Earnings Trend report, earnings of all the utility companies that have reported so far are down 5% year over year for the fourth quarter of 2015, with 21.4% of the companies beating the Zacks Consensus Estimate. Meanwhile, revenues are down nearly 13.3% for the quarter, with none of them surpassing the Zacks Consensus Estimate.

The utility sector failed to impress in its fourth-quarter results with earnings and revenue miss from some of the major players in the space, including Duke Energy Corporation (NYSE:DUK) and Dominion Resources Inc. (NYSE:D). Although some companies like NextEra Energy (NYSE:NEE) managed to beat on earnings, revenues came short of expectations.

However, the slowdown in U.S. economic growth, Chinese market turbulence and plunging oil prices along with other factors resulted in a bearish environment, which led to demand for securities from sectors that provide a safer option. Thus, the utility sector, which is considered to be one of the safer options when the market is exhibiting a high level of volatility, managed to remain in the green over the last one month despite lackluster results (read: 3 Utility ETFs in Focus on Market Downturn).

Below we have highlighted the quarterly results of the aforementioned utility companies in detail.

Duke Energy

Duke Energy reported adjusted earnings of 87 cents per share for the quarter that fell short of the Zacks Consensus Estimate of 94 cents by 7.4%. However, quarterly earnings increased by a penny year over year on the back of higher retail pricing and wholesale margins in the regulated business. Total revenue was $5,351 million, lagging the Zacks Consensus Estimate of $5,709 million by 6.3%. The company has provided 2016 earnings guidance in the range of $4.50 to $4.70 per share. Shares of the company declined 1.4% (as of February 19, 2016) since its earnings release.

NextEra Energy

NextEra Energy's quarterly adjusted earnings of $1.17 per share beat the Zacks Consensus Estimate of $1.11 by 5.4%. Earnings climbed 13.6% year over year on the back of higher revenues from Florida Power & Light Company. However, revenues of $4,069 million missed the Zacks Consensus Estimate by 2.6% and decreased 12.8% from the year-ago level.
NextEra reiterated its earnings guidance of $5.85-$6.35 for 2016. Shares of the company went up 7.5% since its earnings release (as of February 19, 2016).

Dominion Resources

Dominion Resources' quarterly earnings of 70 cents per share lagged the Zacks Consensus Estimate of 87 cents by 19.5%. Earnings decreased 16.7% from 84 cents per share in the prior-year quarter due to mild weather conditions in its service territories, absence of a farmout transaction and the impact of bonus depreciation. The company's operating revenues of $2,556 million also missed the Zacks Consensus Estimate of $4,092 million by 37.5% and declined about 13.1% year over year.

Dominion expects to earn 90 cents to $1.05 per share for the first-quarter 2016 compared with 99 cents per share in the year-ago period. The company expects earnings for 2016 in the range of $3.60 to $4.00 per share. Shares of the company fell 3.8% since its earnings release (as of February 19, 2016).

ETFs in Focus

Mixed results notwithstanding, many utility stocks managed to hold up gains over the past one month, sending the related ETFs higher. This has put the spotlight on utility ETFs. Below we discuss four of these ETFs having a sizeable exposure to the above stocks, holding Zacks ETF Rank #3 (Hold) with a Medium risk outlook (see all Utilities/Infrastructure ETFs here).

Utilities Select Sector SPDR (NYSEARCA:XLU)

XLU is one of the most popular products in the space with nearly $7.6 billion in AUM and average daily volume of roughly 14 million shares. The fund tracks the Utilities Select Sector Index and holds 31 stocks with NextEra Energy, Duke Energy and Dominion Resources among the top five spots with a combined exposure of nearly one-fourth of its total assets. Sector-wise, Electric Utilities (57.82%) dominates the fund followed by Multi-Utilities (38.85%). The fund charges 14 bps in investor fees per year. The ETF has posted gains of 7.3% in the past month (read: 4 Utilities to Buy in a Bear Market).

Vanguard Utilities ETF (NYSEARCA:VPU)

This ETF tracks the MSCI US Investable Market Utilities 25/50 Index. The fund holds 82 stocks in its basket. Duke Energy, NextEra Energy and Dominion Resources occupy the top four positions in the fund with a combined exposure of a little more than 20%. More than half of the fund's assets are invested in Electric Utilities followed by Multi-Utilities (33.8%). The fund has amassed almost $2 billion in its asset base and trades in a moderate volume of 175,000 shares per day. The fund has a low expense ratio of 0.10%. The ETF has surged 7.6% in the last one-month period.

iShares Dow Jones US Utilities (NYSEARCA:IDU)

The fund follows the Dow Jones U.S. Utilities Sector Index and holds 59 stocks in its basket. Duke Energy, NextEra Energy and Dominion Resources are placed among the top five stocks in the fund, together accounting for a share of more than 21% of total assets. On a sectoral basis, Electric Utilities (53.28%) and Multi-Utilities (34.51%) hold the top two positions in the fund. The fund manages an asset base of around $764 million and exchanges about 199,000 shares per day. It is a bit expensive with 44 bps in annual fees. IDU was up 7.5% in the last one-month period.

Fidelity MSCI Utilities ETF (NYSEARCA:FUTY)

This ETF tracks the MSCI USA IMI Utilities Index. The fund holds 83 stocks in its basket. Duke Energy, NextEra Energy and Dominion Resources are among the top four in the fund with a combined exposure of a little more than 20%. More than half of the fund's assets are invested in Electric Utilities followed by Multi-Utilities (33.8%). The fund has amassed almost $231 million in its asset base and trades in a moderate volume of 140,000 shares per day. The fund has an expense ratio of 0.12%. FUTY was up 7.5% in the last one-month period.

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