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Utilities to Report Q1 Earnings on Apr 27: AEP, FE & More

Zacks Equity Research

The Q1 earnings season is approaching the halfway mark, with about 57% of the S&P 500 members coming out with their earnings results by the end of this week. Nearly 800 companies are scheduled to report results this week, including 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  9.1% on 6% higher revenues. Notably, this could be the third straight quarter of 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.

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 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 27.

American Electric Power Co., Inc. AEP reported a positive earnings surprise of 21.8% 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.

American Electric Power’s Earnings ESP is currently -2.06%. This is because the Most Accurate estimate stands at 95 cents, lower than the Zacks Consensus Estimate of 97 cents. 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

American Electric Power Company, Inc. Price and EPS Surprise

 

American Electric Power Company, Inc. Price and EPS Surprise | American Electric Power Company, Inc. Quote

American Electric Power is unlikely to beat earnings because it does not have the right combination of two key ingredients (read more: American Electric Power Q1 Earnings: What's in Store?)

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.

FirstEnergy Corporation FE reported a negative earnings surprise of 2.56% in the previous quarter.

The company’s earnings ESP is currently pegged at -1.41%. This is because the Most Accurate estimate stands at 70 cents whereas the Zacks Consensus Estimate is pegged higher at 71 cents.

FirstEnergy Corporation Price and EPS Surprise

 

FirstEnergy Corporation Price and EPS Surprise | FirstEnergy Corporation Quote

FirstEnergy 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 -1.41% makes earnings beat unlikely this season (read more: What's in the Cards for FirstEnergy in Q1 Earnings?).

Xcel Energy XEL reported a positive earnings surprise of 2.27% in the previous quarter. The company currently carries a Zacks Rank #4.

Xcel Energy’s Earnings ESP is currently pegged at -2.00%. This is because the Most Accurate estimate stands at 49 cents whereas the Zacks Consensus Estimate is pegged higher at 50 cents.

Xcel Energy Inc. Price and EPS Surprise

 

Xcel Energy Inc. Price and EPS Surprise | Xcel Energy Inc. Quote

Hence, Xcel Energy is unlikely to beat earnings as it does not have the right combination of the two key ingredients (read more: Will Xcel Energy Disappoint This Earnings Season?).

SCANA Corporation SCG reported negative earnings surprise of 6.45% in the prior quarter. The company currently carries a Zacks Rank #4.

Scana Corporation Price and EPS Surprise

 

Scana Corporation Price and EPS Surprise | Scana Corporation Quote

The Earnings ESP for SCANA Corporation is 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate both stand at $1.37. SCANA Corporation is unlikely to beat earnings as it does not have the right combination of the two key ingredients (read more: SCANA Corp  in Q1 Earnings: Disappointment in Store? ).
 

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American Electric Power Company, Inc. (AEP): Free Stock Analysis Report
 
Xcel Energy Inc. (XEL): Free Stock Analysis Report
 
FirstEnergy Corporation (FE): Free Stock Analysis Report
 
Scana Corporation (SCG): Free Stock Analysis Report
 
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