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PG&E Corp (PCG) Q1 Earnings: Can the Stock Pull a Surprise?

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PG&E Corporation (PCG - Free Report) is set to report first-quarter 2017 financial results on May 2, before the market opens.

Last quarter, the company posted an earnings surprise of 3.10%. However, the company surpassed the Zacks Consensus Estimate in two of the past four quarters, with an average negative earnings surprise of 8.34%.

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

Factors at Play

PG&E Corp is one of the leading utilities in the U.S. in the integration of private rooftop solar arrays and boasts a solid portfolio of regulated utility assets that offer a stable earnings base and substantial long-term growth potential.

Last year, despite facing severe storm, the company delivered the second best electric reliability performance in its history, thanks to its continued investments in a modern self-healing grid that automatically isolates and minimizes customer outages. Moreover, the company continues to strengthen its gas system by inspecting and upgrading hundreds of miles of transmission pipeline and replacing over 100 miles of distribution main.

Such initiatives are expected to bolster PG&E Corp.’s top line growth in 2017 as well, while the company strives to boost margins by improving its cost structure, performance and reliability of nuclear and fossil fuel-fired units.

Coming to the first quarter updates, at the very onset of this reporting cycle, the company announced that it will implement certain changes to streamline its existing operations. These new strategies include reducing the number of officers by 15% and other employee count by 390. In addition, the company eliminated the roles of nearly 800 non-employee contractors and has decided not to fill 500 open, non-critical positions. We may expect further updates on these initiatives once the company releases its first quarter results.

Furthermore, capacity-related project delays reduced the company’s cost for electric transmission in 2016. Similar results are expected to be witnessed in yet-to-be-reported quarter’s results as well.

In Dec 2016, the company received the final Phase 2 decision in relation to its Gas Transmission and Storage rate case. On account of this, the company expects to record an additional ex parte penalty of $15 million, in the first quarter.

In addition, the company's service territories witnessed warmer-than-normal temperatures during the first quarter. This will result in lower household expenditure on heating and, in turn, might adversely impact revenues for this energy provider.

For the first quarter, the Zacks Consensus Estimate for earnings stands at 84 cents, reflecting a 2.7% year-over-year improvement. Moreover, the Zacks Consensus Estimate for revenues is pegged at $4.15 billion, reflecting a 4.4% year-over-year increase.

Earnings Whispers

Our proven model does not conclusively show that PG&E Corp is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below.

Zacks ESP: PG&E Corp has an Earnings ESP of -3.57%. This is because the Most Accurate estimate stands at 81 cents, lower than the Zacks Consensus Estimate of 84 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: PG&E Corp carries a Zacks Rank #3, which increases the predictive power of ESP. However, the Earnings ESP of -3.57% makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are a few stocks in the Utility space worth considering on the basis of our model which shows that they have the right combination to pull off a beat:

NiSource, Inc. (NI - Free Report) will report first-quarter results on May 3. The company has an Earnings ESP of +3.08% and a Zacks Rank #2.

Pattern Energy Group, Inc. has an Earnings ESP of +300% and a Zacks Rank #3. The company is expected to report first-quarter results on May 9.You can see the complete list of today’s Zacks #1 Rank stocks here.

Pinnacle West Capital Corporation (PNW - Free Report) has an Earnings ESP of +7.14% and a Zacks Rank #3. The company is slated to release first-quarter results on May 2.

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