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Entergy (ETR) Q2 Earnings: Will the Stock Beat Estimates?

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Entergy Corporation (ETR - Free Report) will release second-quarter 2016 financial results before the opening bell on Aug 2. The company reported a positive earnings surprise of 15.38% in the previous quarter. Let’s see how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Entergy 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 Entergy has the right mix.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +6.73%. This is because the Most Accurate estimate stands at $1.11, while the Zacks Consensus Estimate is pegged slightly lower at $1.04. This is a meaningful indicator of a likely positive earnings surprise.

Zacks Rank: Entergy’s Zacks Rank #3, 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.

ENTERGY CORP Price and EPS Surprise

ENTERGY CORP Price and EPS Surprise | ENTERGY CORP Quote

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

Entergy is gradually shifting from a hybrid model to a pure-play utility. The company has outlined growth plans for the utility segment and intends to reduce its footprint at Entergy Wholesale Commodities (“EWC”), the home of merchant nuclear plants.

As revealed during the first-quarter earnings call, Entergy expects full year operational earnings in the range of $4.95−$5.75 per share. Utility, Parent & Other’s adjusted earnings per share are expected in the $4.20–$4.50 band. The company said that there are potential income tax items that may be reflected in second-quarter financials.

However, the company also mentioned the possibility of increased spending related to nuclear performance improvement plans. These costs are additional risks that could apply to Entergy as a whole through the remaining quarters of the year.

Meanwhile, Entergy enjoys a steady flow of contracts. In the second quarter, the company inked two agreements to provide power to the LACC, LLC and Lotte Chemical Louisiana LLC facilities. It will supply up to 30 megawatts (MW) of power every month to LACC's ethylene cracker facility and 45 MW of power to Lotte's mono-ethylene glycol plant.

The company's service territories witnessed above-average temperatures during the second quarter. This should translate into increased electric sales in these regions, which in turn, should boost the top line.

Stocks to Consider

Here are a few other operators in the electric utility space worth considering as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Pattern Energy Group Inc. has an Earnings ESP of +100.00% and a Zacks Rank #2. The company is scheduled to release second-quarter results on Aug 8.

AES Corporation (AES - Free Report) has an Earnings ESP of +11.11% and a Zacks Rank #3. The company will report second-quarter results on Aug 5.

Avista Corp. (AVA - Free Report) has an Earnings ESP of +2.33% and a Zacks Rank #2. The company will report second-quarter results on Aug 3.

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