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What's in Store for American Electric's (AEP) Q4 Earnings?

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American Electric Power Company, Inc. (AEP - Free Report) is set to release fourth-quarter 2020 results on Feb 25, before market open. In the last reported quarter, the company delivered an earnings surprise of 0.68%.

In the trailing four quarters, American Electric delivered an average negative earnings surprise of 0.96%.

Let's take a closer look at the factors influencing the company’s upcoming quarterly results.

Factors at Play

During the October-December 2020 quarter, the majority of the company's service territories witnessed below-normal temperature. This must have boosted electricity demand for heating purpose among American Electric’s customers and, in turn, aided top-line performance in the soon-to-be-reported quarter.

Also, higher rate changes in transmission revenues are expected to have contributed favorably to its quarterly revenues.

Although residential electricity sales can be expected to have steadily bolstered American Electric’s total revenues, industrial and commercial sales performance might not have rebounded to a positive growth trajectory in spite of the gradual economic recovery observed over the past few months.   

The Zacks Consensus Estimate for American Electric’s fourth-quarter revenues is pegged at $3.86 billion, indicating a rise of 6.9% from the year-ago reported figure.

A handful of states within the company’s service territories experienced strong storm activities, accompanied with hails, strong wind gusts and heavy rainfall. Some regions were ravaged by tropical storms. Such weather conditions extensively damaged electric poles and infrastructure, thereby causing American Electric to bear significant expenses for the resultant restoration work. This might have increased its quarterly expenses, thereby hurting the bottom line.

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

Further, since the company generates more margin from residential sales than it does from commercial and industrial, solid residential sales must have boosted operating margin in the fourth quarter. This in turn must have bolstered its overall earnings performance.

The Zacks Consensus Estimate for the company’s fourth-quarter earnings is pegged at 79 cents per share, suggesting a 31.7% improvement from the year-ago reported figure.

What the Zacks Model Unveils

Our proven model predicts 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.

Earnings ESP: American Electric has an Earnings ESP of +1.52%. 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.

Other Stocks to Consider

Here are a handful of other stocks from the Utilities sector that are yet to release Q4 results and possess the right combination to deliver an earnings beat.

CenterPoint Energy (CNP - Free Report) has an Earnings ESP of +11.11% and holds a Zacks Rank #3.

Pacific Gas & Electric (PCG - Free Report) has an Earnings ESP of +10.53% and carries a Zacks Rank #3.

Sempra Energy (SRE - Free Report) has an Earnings ESP of +6.87% and carries a Zacks Rank #3.

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