American Electric Power Co., Inc. (AEP) will release its first quarter 2014 financial results before the market bell on Apr 25, 2014. This energy company registered a positive earnings surprise last quarter. We expect the company to beat again this quarter.
Why a Likely Positive Surprise?
Our proven model shows that American Electric Power is likely to beat earnings because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1, 2 or 3 for this to happen. This is the case here.
Positive Zacks ESP: This is because the Most Accurate estimate stands at 95 cents while the Zacks Consensus Estimate is 91 cents , resulting in +4.40% ESP. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank #3 (Hold): American Electric Power’s Zacks Rank #3 combined with a positive ESP increases the possibility of an earnings beat. The Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.
What is Driving the Better-than-Expected Earnings?
2013 was a profitable year for American Electric Power and it expects to improve upon its performance this year. The ongoing investments in transmission projects and in regulated as well as non-regulated businesses are set to drive this utility’s earnings.
American Electric Power is also focused on expanding its line of businesses. In Feb 2014, its unit AEP River Operations started a new Liquids Division with the receipt of the first of 20 tank barges. The company will transport liquid commodities, including petrochemicals and agricultural chemicals, which will definitely boost its profits.
In addition, heightened industrial activity in its service territories is expected to drive an additional 270 megawatt of fresh demand. This will to a large extent compensate for the loss of Ormet, an aluminum smelter in Ohio, which shut down in October last year.
Other Stocks to Consider
Here are some other companies tied to the electric utility industry worth considering on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter.
Wisconsin Energy Corp. (WEC) has an earnings ESP of +2.41% and carries a Zacks Rank #2 (Buy).
Calpine Corp. (CPN) has an earnings ESP of +16.67% and carries a Zacks Rank #2 (Buy).
Ameren Corporation (AEE) has an earnings ESP of +6.25% and carries a Zacks Rank #2 (Buy).