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We expect utility company FirstEnergy Corp. (FE - Analyst Report) to beat expectations when it reports second-quarter 2013 results before the market opens on Aug 6, 2013.

Why a Likely Positive Surprise?

Our proven model shows that FirstEnergy is likely to beat earnings because it has the right combination of key factors.

Positive Zacks ESP: Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +3.85%. This is meaningful and a leading indicator of a likely positive earnings surprise for this company.

Zacks #3 Rank (Hold): The stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.

The combination of FirstEnergy's Zacks Rank #3 (Hold) and +3.85% ESP make us confident of a positive earnings beat on Aug 6.

What is Driving Better-than-Expected Earnings?

FirstEnergy is following a strategy to shift its focus to higher value retail channels from the Provider of Last Resort Plan (POLR) as there is continuous growth in retail customer coverage. Since Mar 2012, the company’s retail customer coverage expanded by 42%. We believe FirstEnergy’s retail business will maintain an upward movement in the near term.

In first-quarter 2013, FirstEnergy has already experienced positive outcome out of the changes in strategy. This initiative continues to help the company to manage weak market price conditions along with achieving targeted sales of 104 million megawatt-hours (MWh) in 2013.

In addition, FirstEnergy is in the middle of numerous infrastructure modernization projects to enhance power service quality, which will subsequently retain customers. Further, these initiatives are expected to aid in attracting new customers, thereby increasing the customer portfolio while improving future results.

Other Stocks to Consider

FirstEnergy is not the only organization looking up this earnings season. We see other utility players, which are likely to beat earnings.

NRG Energy, Inc. (NRG - Analyst Report), Earnings ESP of +24.24% and Zacks Rank #2 (Buy).

Great Plains Energy Incorporated (GXP - Snapshot Report), Earnings ESP of + 2.56% and Zacks Rank #3 (Hold).

El Paso Electric Company (EE - Snapshot Report), Earnings ESP of +1.39% and Zacks Rank #3 (Hold).

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