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Utility Stocks' Q4 Earnings to Watch on Feb 2: XEL, CMS, ES

Zacks Equity Research

The Q4 earnings season is picking up pace and we saw earnings releases by 171 S&P 500 members as of Jan 30. Reported earnings were up 6% year over year on 3.1% higher revenues. This may well be one of the busiest weeks of this earnings season, with 413 companies (including 106 S&P members) lining up to release financial results.

For the remaining 329 index members, projections are of a 5.3% improvement in earnings on 4.0% higher revenues despite expectations of growth in the negative territory for five of the 16 sectors in our coverage. In the previous quarter, overall earnings were up 3.8% on 2.3% higher revenues. This could be the second quarter to record positive growth following five quarters of back-to-back declines.

Notably, utility is among the 11 sectors in the Zacks coverage universe that are expected to record growth in the positive territory this season. Read more details in our latest Earnings Outlook report.

Trump’s Presidency is expected to benefit defensive and domestic-oriented utilities immensely, even though conventional wisdom runs counter to this view in light of the historical underperformance of high-dividend stocks in the rising interest rate backdrop. During his election campaign, Trump had vowed to lower the regulatory pressure on domestic manufacturers and suggested increased investment in energy infrastructure. If the new administration indeed starts working on these lines, the entire utility sector is bound to get a boost.

Utilities are also characterized by their need for a continuous inflow of funds to execute organic growth and infrastructure upgrade projects. This is essential in maintaining an uninterrupted supply of basic amenities like electricity, fresh water and gas. Utilities thus take recourse to external sources of financing to meet their capital requirements.

Utilities Sector 5YR % Return

 

Utilities Sector 5YR % Return

The Federal Reserve raised the interest rate in Dec 2016. Going forward, Fed officials hint at further interest rate hikes in 2017, provided that the overall economic conditions are conducive for such a move. We believe that a rising interest rate environment could add to the woes of utility operators, as it will increase their cost of capital, limiting their ability to pay consistent dividends.

In the fourth quarter of 2016, utility sector earnings are expected to be up 3.0% on 15.2% higher revenues.

Let’s focus on a few utilities that are scheduled to report fourth-quarter numbers on Feb 2.

Xcel Energy Corp XEL reported a positive earnings surprise of 3.45% last quarter. The company currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Xcel Energy Inc. Price and EPS Surprise

 

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

Xcel Energy’s Earnings ESP,  which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00% as both the estimates are pegged at 44 cents. According to our proven model, stocks with the combination of a Zacks Rank #1, #2 or #3 (Hold) and a positive ESP have high chances of beating estimates. (Read more:Xcel Energy Q4 Earnings: What's Ahead for the Stock?)

CMS Energy Corporation CMS reported a positive earnings surprise of 16.67% last quarter. The company currently carries a Zacks Rank #3.

CMS Energy Corporation Price and EPS Surprise

 

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

It has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 28 cents. (Read more:CMS Energy Q4 Earnings: Stock to Pull a Surprise?)

Eversource Energy ES reported a positive earnings surprise of 3.75% last quarter. The company currently carries a Zacks Rank #3.

Eversource Energy Price and EPS Surprise

 

Eversource Energy Price and EPS Surprise | Eversource Energy Quote

It has an Earnings ESP of 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at 74 cents. (Read more: Eversource Energy Q4 Earnings: What’s in the Cards?)

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

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CMS Energy Corporation (CMS): Free Stock Analysis Report
 
Xcel Energy Inc. (XEL): Free Stock Analysis Report
 
Eversource Energy (ES): Free Stock Analysis Report
 
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