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Key Predictions for Q3 Earnings Reports of DUK, AEE, CNP, PNW

Zacks Equity Research

The third-quarter earnings season has crossed the half way mark. Total earnings for the 327 S&P members that have already released results are up 7.8% year over year on 6.5% higher revenues, with 74.9% beating earnings and 65.7% topping revenue estimates.

Combining the results of the 372 S&P 500 members with the index’s members yet to report, we expect total third-quarter earnings to be up 5.6% year over year on 5.5% higher revenues.

Amid this backdrop, let us focus on Zacks Utilities sector this earnings season. Earnings from the utility space were expected to drop 3.8% on 1.1% lower revenues as of November 1. Notably, 10 out of the 16 sectors in the Zacks coverage universe are expected to witness an earnings decline. Read more details in the weekly Earnings Outlook.

Notably, capital intensive utilities were impacted by increased interest rates in March and June, this year. In addition, the utilities operating in Texas and Florida were severely hurt by the hurricanes (Harvey and Irma).

With the rising interest rates, the stable, regular dividend payer utilities will face strong competition from bonds as these provide higher returns, consequently making them a more attractive option for investors.

Therefore, to maintain their performance level, these utilities are resorting to cost savings initiatives, modernizing transmission and distribution lines, upgrading infrastructure and focusing more on renewable energy to generate electricity with lower emission.  

Let us take a sneak peek at the four utility stocks scheduled to release third-quarter 2017 results on Nov 3.

Duke Energy Corporation DUK witnessed a negative earnings surprise of 0.98% in the previous quarter.

Last month, Hurricane Irma led to catastrophic losses in Florida. As a result, Duke Energy’s electrical system suffered significant damages in Hardee and Highlands County. The company took several initiatives to address these issues and initiated repair work, which included rebuilding this system. These must have increased the third-quarter expenses of Duke Energy, which we believe might weigh down on its bottom-line.

For the to-be-reported quarter, the Zacks Consensus Estimate for earnings reflects a decline of 7.8% year over year. The same for sales are anticipated to drop 1.1% to $6.75 billion.

According to our proven model, stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) have higher chances of beating estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Our proven model does not show that Duke Energy is likely to beat earnings estimates this quarter. This is because the company has an Earnings ESP of -0.78% as the Most Accurate estimate is pegged at $1.55, lower than the Zacks Consensus Estimate of $1.56. Moreover, it carries a Zacks Rank #4 (Sell). (Read more: Will Irma's Impact Dent Duke Energy Q3 Earnings?).

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

Duke Energy Corporation Price and EPS Surprise

Duke Energy Corporation Price and EPS Surprise | Duke Energy Corporation Quote

Ameren Corporation AEE delivered a positive earnings surprise of 14.49% in the last quarter.

In soon-to-be reported quarter, Ameren’s earnings are expected to be affected by a non-cash estimated charge of 6 cents per share, primarily at the parent company. Again, owing to the change in timing of interim period revenue recognition in Ameren Illinois, the bottom line will decrease by approximately 23 cents per share.

In this regard, the Zacks Consensus Estimate for Ameren’s third-quarter earnings reflects 9.9% decline.

Our proven model does not show that Ameren is likely to beat earnings estimates this quarter. This is because the company has an Earnings ESP of 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.31. Moreover, it carries a Zacks Rank #4. (Read more: Is Ameren Likely to Disappoint This Earnings Season?).

Ameren Corporation Price and EPS Surprise

Ameren Corporation Price and EPS Surprise | Ameren Corporation Quote

CenterPoint Energy, Inc. CNP pulled off a positive earnings surprise of 38.10% in the second quarter.

In the third quarter, Hurricane Harvey has severely hit the city of Houston, TX – which is the primary service region of CenterPoint. Though the company didn’t announce any significant damage caused to its power plants, it is expected that the effect of the storm might weigh down on its profitability in the quarter.

On the brighter note, the unemployment rate in CenterPoint Energy’s service territories is better than the national average. An improving economy is likely to boost future utility demand in the state, thereby improving the company’s performance.

For the to-be-reported quarter, the Zacks Consensus Estimate of 41 cents for third-quarter earnings projects a decline of 1%. Meanwhile, the same for revenues of $2.02 billion hints at an improvement of almost 6.7% on a year-over-year basis.

Our proven model does not show that CenterPoint Energy is likely to beat the Zacks Consensus Estimate this quarter. This is because the company has an Earnings ESP of -0.25% and carries a Zacks Rank #2 (Buy). You can see  the complete list of today’s Zacks #1 Rank stocks here.

(Read more: What’s in Store for CenterPoint Energy in Q3 Earnings?).

CenterPoint Energy, Inc. Price and EPS Surprise

CenterPoint Energy, Inc. Price and EPS Surprise | CenterPoint Energy, Inc. Quote

Pinnacle West Capital Corporation PNW pulled off a positive earnings surprise of 28.45% in the previous quarter.

In August, Arizona Corporation Commission approved the company’s first rate review agreement in five years. This decision is likely to act as a strong catalyst for the company’s growth, since it will boost Pinnacle West’s Arizona Public Service unit’s revenues by an estimated 3.3%. Notably the new rates, effective from Aug 19, will increase the residential bill by approximately 4.5% or about $6 per month. We may expect the rate increase to get reflected in improved revenues of APS in the to-be-reported quarter.

Meanwhile, the company projects to witness extended outages at its Four Corners power plant, in the second half of this year for the installation of pollution control equipment. This is expected to push up its operating and maintenance cost for third and fourth quarters of 2017, which in turn may dent the bottom line for coming quarters.

Our proven model does not show that Pinnacle West is likely to beat the Zacks Consensus Estimate this quarter. This is because the company has an Earnings ESP of -0.07% and carries a Zacks Rank #2.  (Read more: What’s in the Cards for Pinnacle West in Q3 Earnings?).

Pinnacle West Capital Corporation Price and EPS Surprise

Pinnacle West Capital Corporation Price and EPS Surprise | Pinnacle West Capital Corporation Quote

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