Northeast Utilities: Will it Beat?

Northeast Utilities ( NU - Analyst Report ) is set to report its fourth-quarter and full-year 2012 results on Feb 19, 2013. Last quarter, the company reported a positive surprise of 7.69%. Let’s see how things are shaping up prior to the announcement.

Factors to Consider This Quarter

As an outcome of Hurricane Sandy, Northeast Utilities invested a substantial amount to repair its existing facilities and construct new utility delivery systems in parts of New York and New Jersey. We expect this unexpected spending to impact the company’s fourth-quarter 2012 performance.

Northeast Utilities has the largest transmission system in the New England region with several new projects in the pipeline. As the company has already invested considerably in those projects, delay or cancellation of these projects will hamper the company’s near-term financial performance.

However, we consider the Northeast Utilities NSTAR-merger as a positive move for Northeast Utilities’ future performance. The company has already experienced its effects in third-quarter 2012 results with strong performance from the transmission segment. The merger will allow the company to increase its scale of operations and widen its customer base, and eventually enjoy earnings growth.

Earnings Whispers?

Our proven model does not conclusively show that Northeast Utilities is likely to beat earnings this quarter. That is because a stock needs to have both a positive Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank of #1, 2 or 3 for this to happen. This is not the case here as you will see below.

Positive Zacks ESP: This is because the Most Accurate estimate stands at 60 cents per share, while the Zacks Consensus Estimate is pegged at 59 cents per share. This comes to a difference of +1.70%.

Zacks Rank #4 (Sell): Northeast Utilities with a Zacks Rank #4 (Sell), lowers the possibility of an earnings surprise. However, the Zacks Rank #4 when combined with a positive ESP makes surprise prediction difficult. We also caution against stocks with Zacks Rank #5 (Strong Sell) going into the earnings announcement, especially when the company is experiencing negative estimate revision momentum.

Other Stocks to Consider

Here are some other companies from the sector you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Dynegy Inc. ( DYN - Snapshot Report ) has earnings ESP of +75.00% and Zacks Rank #3 (Hold)

NV Energy, Inc. ( NVE - Snapshot Report ) has earnings ESP of +14.29% and Zacks Rank #3 (Hold)

PG&E Corporation ( PCG - Analyst Report ) has earnings ESP of +1.75% and Zacks Rank #3 (Hold)