U.S. Markets close in 1 hr 51 mins

Utilities to Post Q1 Earnings on May 1: CMS, EIX, UGI, OTTR

Zacks Equity Research

The Q1 earnings season has reached almost halfway, with more than 40% of the S&P 500 members having released their quarterly numbers. Encouragingly, significant improvement has been witnessed in these companies when compared to the same group in the recent past, with a bigger proportion beating EPS and revenue estimates. As of Apr, 26, 181 S&P 500 members reported their earnings results. Among them 75.7% beat EPS estimates while 64.1% beat revenue estimates.

For Q1 as a whole, with almost 800 stocks slated to reveal their results this week, total earnings are estimated to improve 9.7% on 5.9% higher revenues. This surely reflects notable improvement when compared to prior quarter’s 7.4% earnings growth on 4.8% higher revenues. The picture should become clearer by the end of this week, as 191 index members are scheduled to report earnings.

For the Utility sector which comprises 3% of the total market capitalization, the overall picture is not very impressive, with the stocks expecting to witness 0.5% earnings decline this season. However, revenues from the utilities are expected to improve 5.7%.

Being capital-intensive in nature, the utility sector requires huge investments to set up generation facilities as well as transmission and distribution infrastructure. Funds are also needed to upgrade the existing systems to meet emission control standards. So far, lower interest environment in the States benefitted the utility stocks. However, raised interest rates for two consecutive quarters (Dec 2016 and Mar 2017) by Federal Reserve and at least two more expected hikes this year, has definitely marred the investment prospects in this sector.

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 2016 on account of lower demand. The drop in electricity generation will outweigh the expected rise in electricity prices in 2017, thereby hampering the growth expectations for these utilities.

Further, warmer-than-normal winter in most parts of the U.S. did have an adverse impact on the demand and earnings of these companies. Such factors might have led to negative growth expectation for the utilities’ earnings this season.

At present, four 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 Outlook report.

Let’s take a look at four Utility providers—CMS Energy Corporation CMS, Edison International EIX, Otter Tail Corporation OTTR and UGI Corporation UGI—all of which are scheduled to release quarterly results on May 1.

CMS Energy posted an earnings surprise of 0.00% in the preceding quarter. However, the company surpassed the Zacks Consensus Estimate in two of the trailing four quarters, with an average beat of 8.00%.

Our proven model does not conclusively show that CMS Energy 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. The company does not have the right combination of these two key ingredients.

CMS Energy has an Earnings ESP of -6.15%. This is because the Most Accurate estimate is pegged at 61 cents, lower than the Zacks Consensus Estimate of 65 cents. The company currently carries a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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 (read more: What's in Store for CMS Energy in Q1 Earnings?).

CMS Energy Corporation Price and EPS Surprise

 

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

Edison International recorded a positive earnings surprise of 5.21% in the last quarter. However, the company surpassed the Zacks Consensus Estimate in only one of the trailing four quarters, with an average negative surprise of 5.18%.

The Earnings ESP for Edison International is 0.00% because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 86 cents. The company currently holds a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Therefore Edison International is not likely to beat Q1 earnings this year because it lacks the right combination of two key ingredients (read more: Edison International Q1 Earnings: What's in Store?).

Edison International Price and EPS Surprise

Edison International Price and EPS Surprise | Edison International Quote

Otter Tail Corp recorded a positive earnings surprise of 4.76% in the last quarter. Moreover, the company surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with an average surprise of 4.36%.

Otter Tail Corp’s Earnings ESP is 0.00% because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 44 cents. The company currently holds a Zacks Rank #3.

Therefore, Otter Tail Corp is not likely to beat Q1 earnings because it lacks the right combination of two key ingredients.

Otter Tail Corporation Price and EPS Surprise

 

Otter Tail Corporation Price and EPS Surprise | Otter Tail Corporation Quote

UGI Corp recorded a positive earnings surprise of 21.33% in the last quarter. Moreover, the company surpassed the Zacks Consensus Estimate in two of the trailing four quarters, with an average surprise of 52.21%.

The Earnings ESP for UGI Corp is +1.56% because the Most Accurate estimate is pegged at $1.30, higher than the Zacks Consensus Estimate of $1.28. The company currently holds a Zacks Rank #3.

Thus, UGI Corp is likely to beat Q1 earnings this year because it has the right combination of two key ingredients.

UGI Corporation Price and EPS Surprise

 

UGI Corporation Price and EPS Surprise | UGI Corporation Quote

Looking for Ideas with Even Greater Upside?

Most of Zacks’ investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information>>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
CMS Energy Corporation (CMS): Free Stock Analysis Report
 
Edison International (EIX): Free Stock Analysis Report
 
Otter Tail Corporation (OTTR): Free Stock Analysis Report
 
UGI Corporation (UGI): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research