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Can Sempra Energy (SRE) Pull a Surprise in Q1 Earnings?

Zacks Equity Research

Sempra Energy SRE will report first-quarter 2017 earnings results before the opening bell on May 9.

Last quarter, Sempra Energy recorded a 7.04% positive earnings surprise. However, in the trailing four quarters, the company recorded an average negative surprise of 4.66%.

Let’s see how things are shaping up for the first quarter.

Factors at Play

During the first quarter, Sempra Energy’s management approved a 9% increase in the 2017 dividend to $3.29 per share. This is in line with the company’s target to increase its annual dividend by 8–9% over the next several years. The hike reflects the strong cash flow that Sempra Energy boasts and we expect its first-quarter results to reflect the same.

Moreover, after witnessing strong growth opportunities in the international market, Sempra Energy has decided not to repatriate cash from current earnings from Mexico or Peru, starting from 2017. In fact, it will reinvest that cash locally in capital projects. Consequently, the company has reduced its tax expense guidance. Further updates on this can be expected once Sempra Energy reports its first-quarter figures.

On the flip side, the Aliso Canyon gas leak event caused SoCalGas to incur estimated cost of $780 million, as of Dec 31, 2016. Although, the company has resolved a number of key issues, in relation to this event, there still remains a few that might continue to weigh down on the company’s first-quarter results.

For the first quarter, the Zacks consensus estimate for earnings stands at $1.59, reflecting a year-over-year increase of 8.33%. Meanwhile, the estimate for revenues is pegged at $2.87 billion, displaying a 9.61% upside.

Sempra Energy Price and EPS Surprise


Sempra Energy Price and EPS Surprise | Sempra Energy Quote

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Sempra Energy 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: Sempra Energy has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.59. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

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

Stocks that Warrant a Look

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:

Pattern Energy Group, Inc. PEGI has an Earnings ESP of +250.00% and a Zacks Rank #3. The company is expected to report first-quarter results on May 9.You can see the complete list of today’s Zacks #1 Rank stocks here.

The AES Corporation AES has an Earnings ESP of +10.00% and a Zacks Rank #3. The company is slated to release first-quarter results on May 8.

A Peer Release

Public Service Enterprise Group Inc. PEG or PSEG reported first-quarter 2017 adjusted operating earnings of 92 cents per share, which exceeded the Zacks Consensus Estimate of 84 cents by 9.5%. Earnings also improved 1.1% on a year-over-year basis.

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The AES Corporation (AES): Free Stock Analysis Report
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Sempra Energy (SRE): Free Stock Analysis Report
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