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The Q2 earnings season has started to gather steam, with total earnings of the 87 S&P 500 members that have already reported being up 20.9% from the same period last year on 10.3% higher revenues. Per out latest Earnings Preview report, overall second-quarter earnings for all the S&P 500 members are expected to be up 21.0% on 8.3% revenue growth.
Let's concentrate on the domestic-focused matured Utility sector and find out how it is poised to perform this earnings season. This sector, along with 14 of the 16 Zacks sectors, is likely to come up with improved year-over-year earnings. Currently, the Autos and the Conglomerates sector is likely to register a decline in earnings.
The Utility sector's second-quarter earnings are expected to increase 1.8% year over year on 1.3% revenue growth, courtesy of expected stable performance by most of the utilities. Utility stocks are expected to gain from the new rates in their service territories, customer growth and effective management of expenses, all of which should have a positive impact on second-quarter earnings.
Unemployment rate in the United States during the second quarter was in the range of 3.8-4.0%. This historic low level of unemployment boosted demand for new housing units and in turn the requirement for utility services. Per a U.S. Energy Information Administration ("EIA") report, electricity demand from residential, commercial and industrial sectors during the first half of 2018 improved from the year-ago period.
However, these utilities do have their share of challenges such as a rising debt level, stringent regulations and the hurricane season, which can wreak havoc on infrastructure. Rising interest rates (the Federal Reserve hiked interest rates in June, marking the seventh increase since December 2015) make bonds a strong investment option, as interest rate hike increases the utilities' cost of capital, impacting margins and compromising on their ability to pay or hike dividend rates. Despite the rate hikes, we find the utilities fundamentally strong enough to come up with positive earnings surprise this earnings season.
Let's take a look at some Utility stocks scheduled to report second-quarter 2018 earnings on Jul 26 and how things are shaping up prior to the announcement.
Xcel Energy XEL delivered a positive earnings surprise of 11.76% in the last reported quarter. The company's second-quarter earnings are expected to get a boost from lower unemployment rate in its service territories and growth in the customer level, which is positively impacting electric and natural gas sales volume. (Read more: Xcel Energy to Report Q2 Earnings: Is a Beat in Store? )
Xcel Energy Inc. Price and EPS Surprise
Xcel Energy Inc. Price and EPS Surprise | Xcel Energy Inc. Quote
Xcel Energy has an Earnings ESP of +0.71% and a Zacks Rank #3 (Hold), which is a favorable combination indicating a likely positive earnings surprise this earnings season. A stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 to be able to beat estimates. You can see the complete list of today's Zacks #1 Rank stocks here .
FirstEnergy Corporation FE delivered a positive earnings surprise of 3.56% in the last reported quarter. FirstEnergy is currently a fully-regulated company and is expected to benefit from its modernization drive ‘Energizing the Future’. The plan is expected to create a stronger transmission system and improve service reliability.
FirstEnergy Corporation Price and EPS Surprise
FirstEnergy Corporation Price and EPS Surprise | FirstEnergy Corporation Quote
FirstEnergy Corporation has an Earnings ESP of +0.47% and a Zacks Rank #2, indicating a likely positive surprise. (Read more: Is a Beat in Store for FirstEnergy This Earnings Season?)
You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.
CMS Energy Corporation CMS delivered a positive earnings surprise of 4.88% in the last reported quarter. CMS Energy’s second-quarter earnings are expected to get a boost from proper management of expenses and approval of new electric rates.
CMS Energy Corporation Price and EPS Surprise
CMS Energy Corporation Price and EPS Surprise | CMS Energy Corporation Quote
CMS Energy has an Earnings ESP of +11.26% and a Zacks Rank #2, indicating a likely positive surprise. (Read more: Is a Beat in Store for CMS Energy in Q2 Earnings?)
Edison International EIX reported a negative earnings surprise of 11.11% in the last reported quarter. Edison International’s second-quarter earnings are expected to be adversely impacted by higher wildfire insurance premium, which has been pushing up its operation and maintenance cost.
Edison International Price and EPS Surprise
Edison International Price and EPS Surprise | Edison International Quote
Edison International has an Earnings ESP of -1.63% and a Zacks Rank #3, indicating a likely negative surprise this season. (Read more: Edison International Q2 Earnings: What's in the Cards?)
PG&E Corporation PCG delivered a negative earnings surprise of 11.65% in the last reported quarter. Second-quarter earnings might get a boost from warmer-than-normal temperature experienced in its service territories. However, the company decided to take a $2.5-billion charge related to wildfires, which could impact second-quarter results.
Pacific Gas & Electric Co. Price and EPS Surprise
Pacific Gas & Electric Co. Price and EPS Surprise | Pacific Gas & Electric Co. Quote
PG&E Corporation has an Earnings ESP of -2.18% and a Zacks Rank #3, indicating a likely negative surprise this earnings season. (Read more: PG&E Corp. to Post Q2 Earnings: What's in the Cards?)
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