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American Electric Power (AEP) Q1 Earnings: What's in Store?

Zacks Equity Research

American Electric Power Co., Inc. AEP is set to release first-quarter 2017 results on Apr 27, before the market opens.

In the preceding quarter, this utility provider posted a positive earnings surprise of 21.82%. Also, it outperformed the Zacks Consensus Estimate in three out of the trailing four quarters, the average positive surprise being 7.76%.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

American Electric Power has a stable base of approximately 5.4 million customers spread over 11 states, which offers a steady revenue stream and makes up for lower sales in any particular service area.

Additionally, the company’s consistent focus on utility operations, transmission growth, expansion of customer sales channels, process optimization and disciplined capital deployment continue to drive results for its shareholders and customers.

During the fourth-quarter earnings call, the company said that its unit AEP Southwestern Electric Power Company (SWEPCO) had returned to positive growth and similar results can be expected for this unit in the first quarter as well.

Another unit Public Service Company of Oklahoma (PSO) is expected to revive its positive growth trajectory in the first quarter, after demonstrating weak performance in 2016. According to the company, improvement in oil and natural gas prices are not only encouraging such regional economies, but also boosting these units.

Again, during the quarter under review, American Electric Power completed the sale of four competitive power plants to Lightstone Generation LLC, a joint venture of Blackstone and an affiliate of ArcLight Capital Partners LLC, for approximately $2.1 billion. The company will gain approximately $1.2 billion in cash excluding taxes, repayment of debt associated with these assets and transaction fees. This transaction will materially boost this utility’s first quarter results.

However, the company's service territories witnessed warmer-than-normal temperatures during the first quarter. This will result in lower household expenditure on heating, which is expected to unfavorably impact revenues in the to-be-reported quarter.

For the first quarter, the Zacks Consensus Estimate reflects a decline of 4.66% year over year, while the consensus for revenues is $3.66 billion, implying a 7.90% year-over-year decline.

Earnings Whispers

Our proven model does not conclusively show that American Electric is likely to beat on earnings this quarter. This 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. This is not the case here, as you will see below:

Zacks ESP: American Electric has an Earnings ESP of -2.06% as the Most Accurate estimate is pegged at 95 cents, while the Zacks Consensus Estimate is a little higher at 97 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: American Electric’s Zacks Rank #3 when combined with negative ESP, makes surprise prediction difficult for the quarter.

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

American Electric Power Company, Inc. Price and EPS Surprise


American Electric Power Company, Inc. Price and EPS Surprise | American Electric Power Company, Inc. Quote

Stocks to Consider

Here are a few stocks in the Utility space worth considering on the basis of our model, which shows that they have the right combination to pull off a beat:

NiSource, Inc. NI will report first-quarter results on May 3. The company has an Earnings ESP of +3.08% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pattern Energy Group, Inc. PEGI has an Earnings ESP of +300% and a Zacks Rank #3. The company is expected to report first-quarter results on May 8.

Pinnacle West Capital Corporation PNW has an Earnings ESP of +7.14% and a Zacks Rank #3. The company is slated to release first-quarter results on May 2.

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American Electric Power Company, Inc. (AEP): Free Stock Analysis Report
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