Duke Energy least shorted utility stock in March (NYSEARCA:XLU)

Bets against S&P 500 utility stocks picked up in March compared to February 2024. Average short interest rose by six basis points to 1.73% of shares float at the end of March, accelerating from the two-basis points increase seen in the previous month.

Year-to-date, the Utilities Select Sector SPDR Fund (NYSEARCA:XLU) has gained around 0.68% in the past month, while the S&P 500 utilities sector index (SP500-55) was up 0.65%. In comparison, the broader S&P 500 climbed 9.62% from the start of the year.

NRG Energy (NRG) was the most shorted utility stock, with 10.07M shares sold short as of March end, or 4.75% of shares float. This was still a significant drop from the 8.59% short interest recorded at the end of February.

CMS Energy (CMS) was the second most shorted stock at 3.93% of shares float (nearly the same as Feb-end), followed by Evergy (EVRG) and WEC Energy (WEC) at 3.32% and 2.56%, respectively.

This month, Duke Energy (DUK) had the lowest short interest of 1.09% of shares float, down from 1.19% a month earlier. Entergy (ETR) and NextEra Energy (NEE) were also among the least shorted stocks in the month.

NextEra Energy (NEE), Southern (SO), and Duke Energy (DUK), the three largest contributors to the index, had short interests of 1.22%, 1.47%, and 1.09% at March-end, respectively.

Stocks with the largest and least short positions, ranked by short interest as a percentage of shares float

Industry Analysis:

Gas utilities, which only has Atmos Energy (AES), was the most shorted among S&P500 utility sub-sectors, with 2.51% of shares float sold short in March. This was up from 2.26% at the end of February.

Average short interest among sub-sectors as a percentage of floating shares

Independent power, which only includes AES Corp (AES), had the biggest monthly increase among the sub-sectors, recording a 33 basis point rise to 1.95%. It had the second-highest short interest among the sub-sectors.

Water Utilities was the least shorted within the sector with 1.37% short interest as of March-end, although the steady uptick continued from 1.29% at February end.

Wall Street views on XLU:

The Utilities Select SPDR Fund has generated solid total returns over the years, with an annual return of about 6.7% since inception and roughly 8% over the past ten years. SA columnist Hawkinvest says that the ETF is likely to benefit from a potential “Golden Cross” formation on the chart, the expectation of rate cuts by the Federal Reserve, and the increasing demand for energy in the coming years, recommending it as “Strong Buy.”

With the Q1 earnings season on the horizon, Goldman Sachs expects utilities to post the greatest EPS growth, with NRG Energy (NRG) and PG&E (PCG) likely to be the biggest contributors to the earnings growth for the sector. However, this growth is expected to be broad-based, with the median stock in the sector expected to grow EPS by 8%.