The Q1 earnings season has started gaining momentum, with 800 companies scheduled to report results this week. These include 191 S&P 500 members. As of Apr 21, 95 S&P 500 members came out with their earnings results. Total earnings for these companies are up 14.3% from the same period last year on 4.6% higher revenues, with 72.6% beating EPS estimates and 62.1% beating revenue estimates.
For the remaining index members, earnings are estimated to improve by 9.1% on 6.0% higher revenues. Notably, this could be the third straight quarter to record positive earnings growth after five quarters of back-to-back declines.
Let us now focus on the utility sector, which is characterized by its defensive nature and domestic orientation. Earnings are expected to drop 0.9% this season. However, a prominent utility company, NextEra Energy NEE, started the season with a positive earnings surprise of 12.2%.
The utility sector is also known for its capital-intensive nature. This is because these companies need huge capital to set up generation facilities, and transmission and distribution infrastructure. They also require considerable funds to upgrade the existing systems in order to meet emission control standards. Utilities have been benefiting from the rock-bottom interest rate environment. However, the Federal Reserve raised interest rates for two consecutive quarters (Dec 2016 and Mar 2017), which will definitely hurt the utilities.
As per the U.S. Energy Information Administration (EIA), total U.S. electricity generation from utility-scale plants is expected to decline 0.7% per day in 2017 from 11,140 gigawatt hours per day in 2016 on account of lower demand. The drop in electricity generation will more than offset the expected rise in electricity prices in 2017 and will mar the prospects of utilities as well.
Moderate winter weather in most parts of the U.S. is not going to help the utilities either and is likely to have an adverse impact on the demand and earnings of these companies.
Five out of the 16 sectors in the Zacks coverage universe are expected to witness an earnings decline this season. Read more details in our weekly Earnings Preview report.
Let’s take a look at a few utilities that are scheduled to report quarterly numbers on Apr 26.
Entergy Corporation ETR reported a positive earnings surprise of 181.8% in the previous quarter. The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Entergy Corporation Price and EPS Surprise
Entergy Corporation Price and EPS Surprise | Entergy Corporation Quote
Entergy Corporation’s Earnings ESP, which represents the difference between the Most Accurate estimate of $1.08 and the Zacks Consensus Estimate of $1.06, is +1.89%. According to our proven model, stocks with the combination of a positive ESP and a Zacks Rank #1, 2 (Buy) or 3 have increased chances of beating estimates
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.
Entergy Corporation is likely to beat earnings because it has the right combination of two key ingredients (read more: Entergy to Report Q1 Earnings: Will it Beat Again?).
DTE Energy Company DTE reported a negative earnings surprise of 3.57% in the previous quarter. The company currently carries a Zacks Rank #3.
DTE Energy Company Price and EPS Surprise
DTE Energy Company Price and EPS Surprise | DTE Energy Company Quote
DTE Energy’s Earnings ESP is currently pegged at -1.29%. This is because the Most Accurate estimate stands at $1.53 whereas the Zacks Consensus Estimate is pegged higher at $1.55.
Hence, DTE Energy is unlikely to beat earnings as it does not have the right combination of the two key ingredients (read more: What's in the Cards for DTE Energy in Q1 Earnings?).
NorthWestern Corporation NWE reported in-line earnings in the prior quarter. The company currently carries a Zacks Rank #3.
NorthWestern Corporation Price and EPS Surprise
NorthWestern Corporation Price and EPS Surprise | NorthWestern Corporation Quote
The Earnings ESP for NorthWestern Corporation is +4.90%. This is because the Most Accurate estimate is $1.07, while the Zacks Consensus Estimate stands at $1.02. Since it has the right combination of both the key ingredients, the company is likely to beat earnings this season.
SJW Corporation SJW reported a positive earnings surprise of 3.08% in the previous quarter.
The company’s earnings ESP is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 22 cents.
SJW Corporation Price and EPS Surprise
SJW Corporation Price and EPS Surprise | SJW Corporation Quote
SJW Corporation currently carries a Zacks Rank #3. Though Zacks Rank #1, 2 or 3 increases the predictive power of the ESP, the company’s ESP of 0.00% makes prediction difficult.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
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NextEra Energy, Inc. (NEE): Free Stock Analysis Report
Entergy Corporation (ETR): Free Stock Analysis Report
DTE Energy Company (DTE): Free Stock Analysis Report
NorthWestern Corporation (NWE): Free Stock Analysis Report
SJW Corporation (SJW): Free Stock Analysis Report
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