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We expect utility service provider Xcel Energy Inc. (XEL - Analyst Report) to surpass our expectation when it reports first quarter 2013 results on May 2.

Why a Likely Positive Surprise?

Our proven model shows that Xcel Energy is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at +4.65%. This is a meaningful and leading indicator of a likely positive earnings surprise for shares.

Zacks #2 Rank (Buy): Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.  

The combination of Xcel Energy’s Zacks Rank #2 (Buy) and +4.65% ESP makes us confident of an earnings beat on May 2.

What is Driving the Better-than-Expected Earnings?

Xcel Energy’s high-end midstream projects, disciplined cost-control initiatives and competitive power rate offerings are expected to be the key factors triggering a positive earnings surprise.

Consistent earnings surprises in the last four quarters resulted in an average beat of 5.79%. Given the positive dynamics we expect the same trend to continue in the first quarter as well.

The operational start-up of the Bemidji-Grand Rapids Transmission line under its CapX2020 program will continue to support Xcel Energy’s growth. Moreover, the company’s aggressive investments in renewable generation especially wind will bode well for Xcel Energy given the favorable climate for renewables in the U.S. currently. With prices below the national average owing to its technological efficiency, the company is well positioned to reap gains from the market.

Other Stocks to Consider

Xcel Energy is not the only firm looking up this earnings season. We also see likely earnings beats coming from these three industry peers:

Brookfield Infrastructures Partners L.P. (BIP - Snapshot Report) has an earnings ESP of +1.19% and carries a Zacks Rank #1 (Strong Buy).

ALLETE Inc. (ALE - Snapshot Report) has an earnings ESP of +1.33% and carries a Zacks Rank #2 (Buy).

Pinnacle West Capital Corporation (PNW - Analyst Report) has an earnings ESP of +200.0% and carries a Zacks Rank #3 (Hold).

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