On Thursday, U.S. stocks rallied sharply facing two straight days of losses, especially cutting the loss of Tuesday, after the focus of shareholders is changed from the dollar’s rocket climb to the Federal Reserve’s policy about interest rates.
The Utility SPDR ETF (XLU) is down more than 10% since the end of January. The S&P 500 is up about 2.5% in the same time period.
Utility stocks have been hit hard lately due to rising fears of the Federal Reserve raising interest rates in 2015. Some believe the Federal Reserve could raise rates as early as June of this year.
The Utilities sector has declined about 10% over the last month.
Having beaten every other major sector in 2014, utility stocks have fallen to the back of the pack this year. They are down almost 8% while the S&P 500 is up slightly, with most of that drop happening in the past month. Yet utilities still don’t look that cheap, especially with an interest-rate raise from the Federal Reserve on the horizon.
Despite the drop, both the Dow Jones Utility Average and S&P 500 Utilities indexes are only back to levels reached last fall ahead of hitting all-time highs in January. They now trade around their pre-crisis peaks of late 2007. The sector had been on a tear for much of the past two years. Indeed, back in April 2013, its premium to the S&P 500 in terms of multiples of forward earnings was about 20%, briefly surpassing that of the NASDAQ Composite. Recently, utilities trade at a discount of roughly 6%, although that is still strong by historical standards.
History suggests that this will keep pressure on utility valuations. Since 1980, there have been six Fed tightening cycles that lasted roughly a year or more each. On average, the Dow Jones Utility index lagged behind the S&P 500 in the 12, six and three months leading up to the start of each cycle, by 11.1, 8.1 and 5.5 percentage points, respectively.
Exelon Corporation (NYSE:EXC), jumped nearly 2.86% today, in response to the release that development of LNG Export Terminal in Texas has to explore by Exelon Generation.
According to the release, Houston-based Annova LNG, LLC recently filed a request with the Federal Energy Regulatory Commission to initiate a review of the potential development of a mid-scale natural gas liquefaction and transfer facility at the Port of Brownsville, Texas. Exelon Corporation (EXC) Generation is the majority owner of the Annova LNG Brownsville Project.
The project is contingent upon Annova successfully obtaining all necessary local, state and federal permits; attainment of sufficient long-term customer commitments to buy liquefied natural gas from the facility; and broad public support of the project in South Texas. A decision whether to build the facility is predictable by the end of 2017. Todays filing marks the starting of the projected two-year permitting process.
If built, the LNG terminal would sit beside the Brownsville Ship Channel on 650 acres designated by the Port of Brownsville for industrial use. The projected site is about eight miles from the Gulf of Mexico in Cameron County, Texas. The facility would be operational by 2020.
Construction of the project would support an average of 675 on-site jobs over a four-year period, which translates to about $324 million in direct labor revenue for Texans, according to an Ernst & Young economic analysis accomplished in February 2015. Once operational, the facility would employ about 165 workers at an average salary of about $70,000 a year.
Liquefied natural gas, or LNG, is natural gas that has been cooled until it becomes a liquid, making it easier and more efficient to store and ship. A mid-scale LNG terminal serves a niche market of customers needing smaller LNG deliveries for reasons such as smaller port facilities or lower import requirements.
The project requires 26 federal, state and local permits and licenses, counting approvals from the Federal Energy Regulatory Commission, U.S. Department of Energy, U.S. Army Corps of Engineers, and the U.S. Fish and Wildlife Service, in addition to various construction-related permits. The paperwork filed with FERC recently was a formal notification that Annova intends to pursue permitting and licensing of the project.
The projected site could accommodate three stages of development, with each capable of producing two million tons of LNG a year for at least six million tons annually when complete.
Exelon Corporation, a utility services holding corporation, engages in the energy generation and delivery businesses in the United States. It owns electric generating facilities, such as nuclear, fossil, and hydroelectric generation facilities, as well as wind and solar photovoltaic facilities.
