Will Northeast Utilities' Earnings Disappoint Investors in Q4? - Analyst Blog
Northeast Utilities (NU) is slated to report its fourth-quarter 2014 results after the market closes on Feb 11, 2015. Last quarter, the utility company's earnings missed the Zacks Consensus Estimate by 1.32%. On an average, Northeast Utilities has reported a negative earnings surprise of 4.84% in the last four quarters. Let’s see how things are turning out for the fourth quarter.
Factors to Consider this Quarter
Northeast Utilities’ systematic investments in constructing utility transmission and distribution infrastructure are commendable. The company is currently building the Interstate Reliability Project and strengthening its efficiencies in transformer sensor technology. These initiatives will collectively allow the company to improve its reliability and serve a wider customer base.
Based on the U.S. National Oceanic and Atmospheric Administration’s reports, the Energy Information Administration has projected a decline in the utilization of electricity, natural gas, propane and heating oil due to warmer temperatures this winter. Lower household expenditure on these commodities will impact Northeast Utilities’ Electric Distribution segment’s performance adversely.
Moreover, the utility provider’s operations are capital intensive. Despite having stable cash generating capacity, Northeast Utilities maintained low cash balance of $41.7 million as on Sep 30, 2014. The company had cash and cash equivalents of $43.4 million at the end of 2013. Northeast Utilities often depends on external funds to finance its projects, including expanding the scale of its operations and upgrading existing infrastructure, thereby increasing debt level as well as interest expenses.
Earnings Whispers?
Our proven model does not conclusively show that Northeast Utilities will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat consensus estimates. That is not the case here as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -1.45%. This is because the Most Accurate estimate is pegged at 68 cents, while the Zacks Consensus Estimate stands slightly higher at 69 cents.
Zacks Rank: Northeast Utilities’ Zacks Rank #3, which when combined with a negative ESP, makes an earnings beat difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
PNM Resources, Inc. (PNM) has an earnings ESP of +8.70% and carries a Zacks Rank #2.
NiSource Inc. (NI) has an earnings ESP of +1.96% and carries a Zacks Rank #3.
OGE Energy Corp. (OGE) has an earnings ESP of +11.11% and carries a Zacks Rank #3.
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NISOURCE INC (NI): Free Stock Analysis Report
NORTHEAST UTIL (NU): Free Stock Analysis Report
OGE ENERGY CORP (OGE): Free Stock Analysis Report
PNM RESOURCES (PNM): Free Stock Analysis Report
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