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Edison International (EIX) Q4 Earnings: Surprise in Store?

Zacks Equity Research

Electric utility provider Edison International EIX is scheduled to report fourth-quarter 2016 earnings results on Feb 21 after market close.

Last quarter, the company recorded a negative earnings surprise of 3.05%. However, the company surpassed the Zacks Consensus Estimate in two of the trailing four quarters, the average surprise being 5.19%.

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

Factors at Play

Edison International’s chief unit, Southern California Edison (“SCE”), operates in a supportive regulatory environment that allows the utility to grow systematically. The company is also implementing infrastructure improvement programs like SmartConnect and Solar Photovoltaic Program that focus mainly on system reliability, smart grid technology and compliance with California's renewable energy mandate. Of late, SCE has made a number of changes in its systems and management processes to solve the issue of customer outages in some parts. We expect the yet-to-be reported quarter’s results to duly reflect gains from this initiative.

In terms of cost, the company is witnessing favorable earnings contribution from the operational improvement SCE has focused on for some time. Management believes that the higher depreciation and financing costs reflect normal trends supporting SCE's capital spending program. During the third-quarter earnings call, the company announced outlook for SCE of 9 cents per share for 2016, higher than the original 2016 guidance.

Weather is also likely to play an important role in the to-be-reported quarter. The company’s service territories have witnessed above-average temperatures during the fourth quarter, which should boost demand for utility services and thus drive the top line.

However, Edison International’s operations are subject to complex federal, state and local legislative requirements, as well as extensive environmental regulations. The company generates more than 80% of its revenues from regulated utility assets. Hence, its earnings are dependent on approvals from regulatory bodies and any adverse ruling could impact its performance.

Overall, for the fourth quarter, the Zacks Consensus Estimate for earnings is at 95 cents per share, reflecting a year-over-year increase of 8.41%, while that for revenues is pegged at $3.05 billion, translating into 30.09% growth.

Earnings Whispers

Our proven model does not conclusively show that Edison International is likely to beat 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: Edison International has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 95 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Edison International carries a Zacks Rank #3 (Hold) 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.

Edison International Price and EPS Surprise


Edison International Price and EPS Surprise | Edison International Quote

Stocks that Warrant a Look

Here are a few defense stocks which have the right combination of elements to post an earnings beat this quarter:

Pinnacle West Capital Corporation PNW has an Earnings ESP of +2.04% and a Zacks Rank #2. The company is expected to release its quarterly figures on Feb 24.

FirstEnergy Corp. FE has an Earnings ESP of +2.56% and a Zacks Rank #3. It is expected to report earnings on Feb 21. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chesapeake Utilities Corporation CPK has an Earnings ESP of +4.11% and a Zacks Rank #3. It is expected to report earnings on Feb 28.

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