ETFs In Focus After Utilities Q2 Results

Dominion Energy Inc

Shares of Dominion Energy Inc (NYSE:D) closed 1.2% higher at market close on August 2, 2017, owing to better-than-expected earnings. The company reported a year-over-year increase of 8.3% in net quarterly revenues.

Q2 Performance

Dominion reported non-GAAP earnings per share of $0.67 — ahead of the Zacks Consensus Estimate of $0.66 but lower than the year-ago earnings of $0.71. However, revenues of $2.813 billion failed to beat the consensus mark of $2.865 billion. Income from operations increased to $801 million from $781 million a year earlier.

Operating Earnings

Power Delivery reported operating earnings of $127 million, reflecting an increase from $104 million a year ago.

Power Generation reported operating earnings of $240 million, reflecting an increase from $171 million a year ago.

Gas Infrastructure reported operating earnings of $163 million, reflecting an increase from $162 million a year ago.

Corporate and other reported operating loss of $109 million against a gain of $4 million a year ago.

Outlook

Dominion Energy expects full-year 2017 operating earnings to be in the range of $3.40—$3.90 per share and third quarter operating earnings in a band of $0.95—$1.15 per share.

NextEra Energy

Shares of NextEra Energy Inc. (NYSE:NEE) were up 1.66% at market close on July 26, 2017, as the company reported better than expected results. The company reported a 15.37% year-over-year increase in net quarterly revenues. Moreover, it beat the Zacks Consensus Estimate on both earnings and revenue.

Q2 Performance

NextEra Energy reported non-GAAP earnings per share (EPS) of $1.86, increasing 11.37% year over year and beating the Zacks Consensus Estimate of $1.76. Moreover, revenues of $4.404 billion came ahead of the consensus mark of $4.353 billion.

The company reported operating income of $1.285 billion, reflecting an increase from $1.169 billion a year ago.

Revenue Performance

Florida Power and Light revenue increased to $3.091 billion from $2.750 billion a year ago.

NextEra Energy Resources revenues increased to $1.295 billion from $970 million a year ago.

Corporate and Other revenues dropped to $18 million from $97 million a year ago.

Guidance

NextEra Energy expects adjusted EPS to be in a range of $6.35—$6.85 for 2017 and $6.80—$7.30 for 2018.

Duke Energy Corp

Shares of Duke Energy Corp (NYSE:DUK) closed 0.23% lower at market close on August 3, 2017, after it missed the earnings estimates for the second quarter of 2017. The company reported a year-over-year increase of 1.3% in net quarterly revenues.

Quarterly Performance

Duke Energy reported non-GAAP earnings per share of $1.01, which came below the Zacks Consensus Estimate of $1.02 and the year-ago earnings of $1.07. However, revenues of $5.555 billion beat the consensus mark of $5.541 billion. Operating income rose to $1.387 billion from $1.259 billion a year ago.

Segment Performance

Electric Utilities and Infrastructure reported operating revenues of $5.158 billion, increasing from $5.001 billion a year ago. Segment income amounted to $729 million, up from $704 million a year ago.

Gas Utilities and Infrastructure reported operating revenues of $301 million, increasing from $99 million a year ago. Moreover, segment income amounted to $27 million, up from $16 million a year ago.

Commercial Renewables reported operating revenues of $110 million, declining from $112 million a year ago. Segment income amounted to $26 million, up from $11 million a year ago.

Other Revenues amounted to $35 million, up from $30 million a year ago. Segment expenses totaled $94 million (before adjusting Piedmont merger costs), down from net expense of $107 million a year ago.

Outlook

Duke Energy reiterated its full-year 2017 adjusted earnings guidance of $4.50-$4.70 per share.

In the current scenario, we believe it is prudent to discuss the following ETFs that have a relatively high exposure to the three companies.

Utilities Select Sector SPDR Fund XLU

XLU is one of the most popular funds in the utility space. It primarily provides exposure to the U.S. companies involved in electricity or natural gas. The fund has AUM of $7.62 billion and is a relatively cheaper bet as it charges a fee of 14 basis points a year. It has a 10.17% allocation to NextEra Energy, 8.22% to Duke Energy and 7.26% to Dominion Energy. It closed 0.39% higher at market close on Thursday, May 04, 2017. The fund has returned 6.49% in the last one year and 11.22% year to date (as of August 3, 2017). It currently has a Zacks ETF Rank #4 (Sell) with a Medium risk outlook (read: Rate Sensitive ETFs in Focus as Fed Meets).

Vanguard Utilities ETF VPU

This ETF offers targeted exposure to U.S. utility companies. It has AUM of $3.3 billion and charges a fee of 10 basis points a year. It has an 8.3% allocation to NextEra Energy, 7.4% to Duke Energy and 6.1% to Dominion Energy (as of June 30, 2017). The fund has returned 7.16% in the last one year and 10.85% year to date (as of August 3, 2017). It currently has a Zacks ETF Rank #4 (Sell) with a Medium risk outlook (read: Dovish Yellen Testimony to Boost These ETFs).

iShares U.S. Utilities ETF (NYSE:D)

This ETF offers targeted exposure to U.S. utility companies. It has AUM of $729.3 million and charges a fee of 44 basis points a year. It has an 8.73% allocation to NextEra Energy, 7.62% to Duke Energy and 6.22% to Dominion Energy (as of August 2, 2017). The fund has returned 6.66% in the last one year and 10.90% year to date (as of August 3, 2017). It currently has a Zacks ETF Rank #4 (Sell) with a Medium risk outlook.

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