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Can DTE Energy (DTE) Pull a Surprise this Earnings Season?

Zacks Equity Research

DTE Energy Company DTE is set to report fourth quarter and full-year 2016 results on Feb 9, before the market opens.

Last quarter, the company posted an earnings surprise of 27.27%. Moreover, the company surpassed the Zacks Consensus Estimate in all of the past four quarters, with an average beat of 10.07%.

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

Factors at Play

Of late, DTE Energy’s focus has been on improving its cost structure and directing capital investments toward renewable generation, utility infrastructure and environmental compliance assets.  In fact, the company follows a disciplined capital spending program to maintain and upgrade the reliability of its electric utility systems with a $6.5 billion investment planned over the next 10 years.

During the third quarter, DTE Energy expanded its total capital outlay for 2016 by $1.1 billion, reaching the total capital expenditure figure to $3.8 billion for 2016, which comprises $1,550 million investment for DTE Electric, $430 million for DTE Gas and an increased investment by $1.1 billion for DTE Non-Utility.

With respect to its outlook for full-year 2016, DTE Energy raised its operating earnings per share guidance from the range of $4.91–$5.19 to $5.09–$5.35 during its third-quarter earnings call. The raised guidance was backed by favorable weather conditions at DTE Electric, favorable performance witnessed across all platforms at the Gas Storage & Pipeline business and a strong year-to-date economic performance at its trading company. This trend is expected to be maintained in the fourth quarter as well.

Coming to expectations about its fourth-quarter results, the company anticipates Energy Trading to have accounting income that will cover its expenses. However, to fulfill its huge investments in a number of projects the company needs to spend sumptuously, which in turn increases its capital expenditure. To cover these expenditures, the company needs to generate sufficient cash from its business.

Also, during the fourth quarter, DTE Energy completed the acquisition of midstream natural gas assets worth $1.3 billion. The transaction has allowed the company to expand its business by increasing its access to various markets, including the Great Lakes region, through interconnections with the Columbia Gas Transmission, Texas Eastern Transmission and NEXUS Gas Transmission projects.

Further, during the yet-to-be reported quarter, DTE Energy raised its quarterly dividend by 7% to $0.825 per share, reflecting increased cash from operations. The increased dividend was scheduled to be paid on Jan.15, 2017, to shareholders of record as of Dec 19, 2016.

Overall, for the fourth quarter, the Zacks Consensus Estimate for earnings is pegged at 84 cents, reflecting a 16.6% year-over-year decline.

Earnings Whispers

Our proven model does not conclusively show that DTE Energy is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESPand 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: DTE Energy has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 84 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: DTE Energy carries a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Meanwhile, 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.

DTE Energy Company Price and EPS Surprise


DTE Energy Company Price and EPS Surprise | DTE Energy Company Quote

Stocks that Warrant a Look

Here are a few other players in the utility space, which have the right combination of elements to post an earnings beat this quarter:

Pinnacle West Capital Corporation PNW has an Earnings ESP of +4.08% and a Zacks Rank #2. The company is expected to release its quarterly figures on Feb 24.

Portland General Electric Company POR has an Earnings ESP of +1.56% and a Zacks Rank #2. It is expected to report earnings on Feb 17. You can see the complete list of today’s Zacks #1 Rank stocks here.

Entergy Corporation ETR has an Earnings ESP of +15.39% and a Zacks Rank #3. It is expected to report earnings on Feb 15.

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