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4 Utility Stocks Set to Outpace Earnings Estimates in Q4

Jewel Saha

Utilities registered earnings growth in the first three quarters of 2019 and the trend is expected to have continued in the fourth quarter as well. The Zacks  Utility sector is expected to see 14.6% year-over-year earnings improvement on 4.5% revenue growth. For more details, refer to our latest Earnings Outlook.

What’s Working in Favor?

New electric and water rates, increase in customers, and proper management of expenses are likely to have had a positive impact on utilities’ earnings. Domestic-focused mature utilities are benefiting from the usage of new technologies, which enable them to maintain transmission and distribution lines. Gradual introduction of smart meters in their service territories and setting up of large battery storage units are helping utilities to provide 24X7 services to customers.

Interest rates hike has been a concern for these capital-intensive sectors. However, the Fed lowered interest rates thrice since July 2019, which allowed these utilities to refinance old debts and issue new debts at lower rates, allowing them to continue with the much-needed infrastructure additions and maintenance. The interest rate cuts were a welcome change for utilities, positively impacting margins.  

A gradual transition is visible in the utility space, as increasing number of companies operating in the utility sector are announcing plans to lower carbon emissions from their production portfolio. Utilities are gradually moving away from coal, and focusing on natural gas and other renewable sources to produce power.

Use of electricity in transportation, low unemployment rates, and improvement in homebuilding and residential markets will continue to drive demand for essential services that the utilities provide.

Ways to Pick Winners in the Utility Space
        
Choosing the right stock for one’s portfolio from too many participants is certainly a tough job. An easy way to streamline the list is by selecting stocks with a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Per our proprietary methodology, Earnings ESP is a determining factor for zeroing in on stocks with maximum chances of beating on earnings in the next announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

Please check our Earnings ESP Filter that enables you to come across stocks with the potential to outshine earnings estimates this reporting cycle.

Our research shows that stocks with the perfect combination of the two key ingredients have 70% chances of delivering a positive earnings surprise.

For investors seeking to apply this proven model to their portfolio, we have highlighted four Utility stocks that are poised to beat fourth-quarter earnings estimates in the upcoming releases.

Our Picks

St. Louis, MO-based Ameren Corporation AEE is a utility company that generates and distributes electricity and natural gas to residential, commercial, industrial and wholesale end markets in Missouri and Illinois.

Ameren has a Zacks Rank #3 and an Earnings ESP of +2.73%. You can see the complete list of today’s Zacks #1 Rank stocks here.

It is scheduled to announce quarterly numbers on Feb 26.

Ameren Corporation Price and EPS Surprise

Ameren Corporation Price and EPS Surprise

Ameren Corporation price-eps-surprise | Ameren Corporation Quote

Houston, TX-based CenterPoint Energy Inc. CNP is a domestic energy delivery company that provides electric transmission & distribution, natural gas distribution and competitive natural gas sales and services operations.

CenterPoint Energy has a Zacks Rank #3 and an Earnings ESP of +1.09%.
 
The company is set to announce quarterly results on Feb 27.

CenterPoint Energy, Inc. Price and EPS Surprise

CenterPoint Energy, Inc. Price and EPS Surprise

CenterPoint Energy, Inc. price-eps-surprise | CenterPoint Energy, Inc. Quote

Arlington, VA-based The AES Corporation AES is a global power company.

AES Corp has a Zacks Rank #3 and an Earnings ESP of +0.76%.

It is slated to announce quarterly results on Feb 28.

The AES Corporation Price and EPS Surprise

The AES Corporation Price and EPS Surprise

The AES Corporation price-eps-surprise | The AES Corporation Quote


Pattern Energy Group Inc. PEGI, based in San Francisco, CA, is an independent power company focused on production of electricity from renewable sources.

Pattern Energy Group has a Zacks Rank #3 and an Earnings ESP of +457.14%.

It is slated to announce quarterly numbers on Mar 6.

Pattern Energy Group Inc. Price and EPS Surprise

Pattern Energy Group Inc. Price and EPS Surprise

Pattern Energy Group Inc. price-eps-surprise | Pattern Energy Group Inc. Quote

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CenterPoint Energy, Inc. (CNP) : Free Stock Analysis Report
 
The AES Corporation (AES) : Free Stock Analysis Report
 
Pattern Energy Group Inc. (PEGI) : Free Stock Analysis Report
 
Ameren Corporation (AEE) : Free Stock Analysis Report
 
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