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DTE Energy (DTE): Stock to Beat Q2 Earnings Estimates?

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DTE Energy (DTE - Free Report) will release second-quarter 2016 financial results before the market opens on Jul 26. In the prior quarter, this diversified utility company's earnings matched the Zacks Consensus Estimate. However, in the four trailing quarters, it has surpassed the Zacks Consensus Estimate thrice, with an average positive surprise of 2.34%.

Let’s see how things are shaping up at the company prior to this announcement.

DTE ENERGY CO Price and EPS Surprise

DTE ENERGY CO Price and EPS Surprise | DTE ENERGY CO Quote

Why a Likely Positive Surprise?

Our proven model shows that DTE Energy is likely to beat earnings this season because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to be able to beat estimates, and DTE Energy has the right mix.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +2.20%. This is because the Most Accurate estimate stands at 93 cents, while the Zacks Consensus Estimate is pegged slightly lower at 91 cents. This is a meaningful indicator of a likely positive earnings surprise.

Zacks Rank: DTE Energy’s Zacks Rank #2, when combined with a positive ESP, makes us reasonably confident of an earnings beat this quarter.

Conversely, Sell-rated stocks (#4 or #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

What’s Driving the Better-than-Expected Earnings?

DTE Energy is focused on improving its cost structure and directing capital investments toward renewable generation, utility infrastructure and environmental compliance assets. Planned investments in regulated electric and gas infrastructure in Michigan and expansion of the company’s existing pipelines as well as the development of the NEXUS pipeline will help the utility attain year-over-year earnings growth of 5% to 6% in 2016.

The unemployment rate in DTE Energy’s service territories is marginally better than the national average. An improving economy is likely to boost future utility demand in the state. This, in turn, will drive the company’s performance.

Meanwhile, a strong cash flow generation capability has helped DTE Energy to fund a share buyback program and boost shareholder value. In April, the company’s board of directors approved a 5.5% hike in the annual dividend to 77 cents per share from 73 cents. This reflects management's confidence in its long-range growth plan.

However, a relatively cooler weather this April might adversely impact its prospects in the to-be-reported quarter.

Other Stocks to Consider

Here are a few other players in the utility space, which also have the right combination of elements to post an earnings beat this quarter:

Entergy Corporation (ETR - Free Report) has an Earnings ESP of +28.85% and a Zacks Rank #3. It is expected to report earnings on Aug 2.

Public Service Enterprise Group Inc. (PEG - Free Report) has an Earnings ESP of +3.45% and a Zacks Rank #3. It is slated to report earnings on Jul 29.

Consolidated Edison, Inc. (ED - Free Report) has an Earnings ESP of +2.67% and a Zacks Rank #3. It is expected to report earnings on Aug 4.

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