Public Service Enterprise (PEG): What's Up in Q1 Earnings?

Public Service Enterprise Group Inc. PEG is scheduled to report first-quarter 2016 results before the opening bell on Apr 29.

Last quarter, this utility posted a positive earnings surprise of 4.17%. Let’s see how things are shaping up for this announcement.

Factors at Play

Public Service Enterprise emphasizes on building reliable transmission and distribution infrastructure at its facilities. In Mar 2016, the company announced its plans to spend $16 billion over the next five years, marking an increase of $3.0 billion over its earlier projection of an investment of $13 billion.

A major fraction of the outlay will be allocated for PSEG’s New Jersey-based gas and utility subsidiary, Public Service Electric and Gas Company (“PSE&G”). The latest capital investment plan will likely help the company maintain strong operating earnings growth.

Apart from focusing on transmission and distribution infrastructure, Public Service Enterprise is expanding its renewable assets. During the first quarter, the company acquired a 37.8-megawatt ("MW") solar facility located about 165 miles south of Denver, in Las Animas County, CO; a 36.3-MW solar plant, located 25 miles north of Fort Collins, CO; and a solar facility with a capacity of 25.9 MW-dc in Martin County, NC. It also purchased ownership interests in two solar facilities – a 3.9-MW dc project in Livermore, CA, and a 62.7 MW-dc facility in Millard County, UT. These acquisitions will increase the total capacity of PSEG Solar Source's portfolio to 315 MW-dc.

Meanwhile, strong cash flow generation has enabled the company to provide substantial financial flexibility to support capital programs and undertake shareholder-friendly initiatives like regular dividend payments. In February, the company declared a quarterly dividend of 41 cents per share for the first quarter of 2016, up 5.1% from 39 cents paid earlier, bringing the annual dividend rate to $1.64.

However, environmental regulations related to carbon-dioxide emissions and other pollutants produced by Public Service Enterprise’s fossil fuel-fired units might lead to an increase in the company’s compliance-related costs. These factors could hurt its financial performance and limit profitability.

Earnings Whispers

Our proven model does not conclusively show that Public Service Enterprise is likely to beat estimates 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) for this to happen. But that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -5.50%. This is because the Most Accurate estimate stands at 86 cents, while the Zacks Consensus Estimate is pegged higher at 91 cents.

Zacks Rank: Though Public Service Enterprise’s Zacks Rank #2 increases the predictive power of ESP, we need a positive ESP to be confident about an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Pattern Energy Group Inc. PEGI has an Earnings ESP of +466.67% and a Zacks Rank #3. The company is expected to release first-quarter 2016 results on May 5.

Hawaiian Electric Industries Inc. HE has an Earnings ESP of +2.7% and a Zacks Rank #3. The company is expected to release first-quarter 2016 earnings on May 4.

Consolidated Edison, Inc. ED has an Earnings ESP of +0.82% and a Zacks Rank #3. The company is expected to report first-quarter 2016 earnings on May 5.

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