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What's in Store for American Electric (AEP) in Q3 Earnings?

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American Electric Power Company, Inc. (AEP - Free Report) is set to release third-quarter 2020 results on Oct 22, before market open. In the last-reported quarter, the company delivered an earnings surprise of 1.89%.

In the trailing four quarters, American Electric came up with an average earnings surprise of 1.31%.

Factors at Play

During the July-September 2020 quarter, majority of the company's service territories witnessed warmer-than-normal temperatures. This must have boosted electricity demand for cooling purpose, among American Electric’s customers, which, in turn, must have contributed to its top line in the soon-to-be-reported quarter.

Despite the coronavirus-led business restrictions, American Electric has been witnessing dismal industrial and commercial sales performance. In the second quarter the company observed significant increases in its residential load owing to the stay-at-home provisions. Even after many of the states began their phased re-openings, the company continued to see strong growth in weather-normalized residential sales across all jurisdictions. This trend is expected to have continued in the third quarter and in turn boosted its overall quarterly sales.  

The Zacks Consensus Estimate for American Electric’s third-quarter revenues is pegged at $4.48 billion, indicating a rise of 4.1% from the year-ago quarter reported figure.

A handful of states within the company’s service territories like Texas, Oklahoma, Arkansas, Tennessee and Louisiana experienced strong storm activities, accompanied with hails, strong wind gusts and heavy rainfall. Some parts were ravaged by tropical storms. Such weather conditions are expected to have extensively damaged electric poles and infrastructure, thereby causing American Electric to bear significant expenses for the resultant restoration work.  This must have pushed up its quarterly expenses thereby hurting the bottom line.

Meanwhile, the company remains on track for $100 million of cost reductions for this year as it adjusts to expectations regarding revenues due to COVID-19 impact and weather-related deterioration it had witnessed in the first quarter. This initiative is expected to have reduced the negative impact of the aforementioned storm activities on its overall expense to some extent.

The Zacks Consensus Estimate for the company’s third-quarter earnings is pegged at $1.44 per share, suggesting 1.4% decline from the year-ago quarter’s reported figure.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for American Electric this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here.

Earnings ESP: American Electric has an Earnings ESP of -5.42%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks to Consider

Here are some players from the Utilities sector that have the right combination of elements to post an earnings beat in the to-be-reported quarter.

DTE Energy (DTE - Free Report) is set to release third-quarter earnings on Oct 27. It has an Earnings ESP of +9.04% and a Zacks Rank #3, presently.

CMS Energy (CMS - Free Report) is set to release third-quarter earnings on Oct 29. It has an Earnings ESP of +0.47% and a Zacks Rank #2, currently.

CenterPoint Energy (CNP - Free Report) is expected to release third-quarter numbers on Nov 5. It has an Earnings ESP of +3.28% and a Zacks Rank of 3 currently.

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