U.S. Markets close in 32 mins

Utility Stocks' Q2 Earnings Due on July 25: NEE, AEP, DTE

Zacks Equity Research
1 / 4

Utility Stocks' Q2 Earnings Due on July 25: NEE, AEP, DTE

Let's focus on the capital-intensive utilities scheduled to release second-quarter 2018 earnings on Jul 25, 2018.

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 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 earnings are expected to increase 1.8% year over year on 1.3% growth in revenues, 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.

The 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 comprising 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 season.

Let’s take a look at some Utility stocks scheduled to report second-quarter 2018 earnings on Jul 25 and how things are shaping up prior to the announcement.

NextEra Energy NEE delivered a positive earnings surprise of 8.99% in the last reported quarter. NextEra Energy’s second-quarter earnings are expected to get a boost from its subsidiary Florida Power & Light Company’s (FPL) high base revenues, as well as a decline in operation and maintenance expenses. (Read more: NextEra Energy to Report Q2 Earnings: What's in Store?)


NextEra Energy, Inc. Price and EPS Surprise
 

NextEra Energy, Inc. Price and EPS Surprise | NextEra Energy, Inc. Quote

NextEra has an Earnings ESP of +3.66% and a Zacks Rank #3 (Hold), which is a favorable combination indicating a likely positive earnings surprise this 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.

American Electric Power Company, Inc. AEP delivered a negative earnings surprise of 3.03% in the last reported quarter. Favorable rate case outcomes along with continuous drop in unemployment rate are likely to have a positive impact on the residential sales volume and thereby boost earnings.

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 has an Earnings ESP of +2.14% and a Zacks Rank #3, indicating a likely positive surprise. (Read more: Is American Electric Poised to Beat in Q2 Earnings ?)

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

DTE Energy Company DTE delivered a positive earnings surprise of 1.06% in the last reported quarter. Weather conditions in its service territories are expected to drive demand for utility services and positively impact earnings.  (Read more: Is a Beat in Store for DTE Energy in Q2 Earnings?)

DTE Energy Company Price and EPS Surprise
 

DTE Energy Company Price and EPS Surprise | DTE Energy Company Quote

DTE Energy has an Earnings ESP of +25.36% and a Zacks Rank #3, indicating a likely positive earnings surprise this season.
 
Note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>


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
 
American Electric Power Company, Inc. (AEP) : Free Stock Analysis Report
 
NextEra Energy, Inc. (NEE) : Free Stock Analysis Report
 
DTE Energy Company (DTE) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research