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Utility Stocks Q2 Earnings Due on Jul 28: PEG, CMS & More

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The Q2 earnings season is fast approaching its core. As of Jul 26, 171 S&P 500 members came up with their quarterly earnings. Total earnings for these companies are up 8.8% from the same period last year on 3.4% higher revenues. 78.9% of the companies beat EPS estimates while 70.8% topped revenue estimates.

It is going to be another busy week with nearly 800 companies – including 183 S&P 500 members – expected to come up with earnings results. Combining results of the reported index members (171 members till Jul 26) with the remaining 329 members of S&P 500, earnings are estimated to improve 8.7% on 4.7% higher revenues.

Let us now focus on the utility sector, which is characterized by its defensive nature and domestic orientation. Earnings are expected to drop 2.7% this season.

The utility sector is capital-intensive. These companies need huge capital to set up generation facilities, and transmission and distribution infrastructure. They also require considerable funds to maintain and upgrade the existing systems in order to meet emission-control standards. Utilities have been benefiting from the rock-bottom interest rate environment. However, the Federal Reserve has raised the rates twice in 2017 – in March and June. This will definitely hurt the utilities. The Fed has maintained its forecast for one more rate hike in 2017.

With the rising interest rates, the stable, regular dividend payer utilities will face strong competition from bonds as these provide higher returns, which will make them a more attractive option for the investors.

The U.S. coal-based utilities got a respite with President Trump’s decision to repeal the Climate Power Plan. Moreover, Trump has walked out of the Paris Climate Agreement.    

Four out of the 16 sectors in the Zacks coverage universe are expected to witness an earnings decline this season. Read more details in our weekly Earnings Outlook.

Let’s take a look at a few utilities that are scheduled to report quarterly numbers on Jul 28.

Public Service Enterprise Group Inc. (PEG - Free Report) reported a positive earnings surprise of 5.50% in the previous quarter. The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Public Service Enterprise’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 57 cents. According to our proven model, stocks with the combination of a positive ESP and a Zacks Rank #1, 2 (Buy) or 3 have increased chances of beating estimates. You can uncover the best stocks to buy or sell before they’re reported with our our Earnings ESP Filter

The company is unlikely to beat earnings because it does not have the right combination of the two key ingredients (read more: Public Service Enterprise Q2 Earnings: What to Expect?).

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.

CMS Energy Corporation (CMS - Free Report) reported a positive earnings surprise of 9.23% in the previous 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

CMS Energy’s Earnings ESP is -4.88%. This is because the Most Accurate estimate is pegged at 39 cents, lower than the Zacks Consensus Estimate of 41 cents.

Hence, the company is unlikely to beat earnings as it does not have the right combination of the two key ingredients (read more: CMS Energy to Post Q2 Earnings: What's in the Cards?).

Eversource Energy (ES - Free Report) reported a negative earnings surprise of 1.20% in the previous quarter. The company currently holds a Zacks Rank #2.

Eversource Energy Price and EPS Surprise

 

Eversource Energy Price and EPS Surprise | Eversource Energy Quote


Eversource Energy’s Earnings ESP is -1.47%. This is because the Most Accurate estimate is pegged at 67 cents, lower than the Zacks Consensus Estimate of 68 cents.

Hence, the company is unlikely to beat earnings as it does not have the right combination of the two key ingredients (read more: What's in Store for Eversource Energy in Q2 Earnings?).

Fortis Inc. (FTS - Free Report) reported a negative earnings surprise of 7.02% in the previous quarter. The company currently carries a Zacks Rank #2.

Fortis Inc. Price and EPS Surprise

 

Fortis Inc. Price and EPS Surprise | Fortis Inc. Quote

Fortis Inc.’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 41 cents.

Hence, the company is unlikely to beat earnings as it does not have the right combination of the two key ingredients.

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