The companies belonging to the Zacks Utilities sector ensure a continuous supply of electricity, potable water and natural gas and provide wastewater services to millions of customers across the United States. The sector is off to a solid start to the fourth-quarter earnings season, with NextEra Energy (NEE Quick QuoteNEE - Free Report) beating estimates by 2.5%.

Per the current Earnings Trends report, the utility sector’s fourth-quarter earnings are expected to decline 2%, while revenues are estimated to improve 9.6%. So far, only 7.1% of the utilities have reported fourth-quarter results, registering 5.2% earnings growth on the back of 14.4% revenue growth.

Factors Likely to Impact Q4 Results

A transition in the utility space is quite evident. The utilities remained focused on making systematic investments to add renewable energy sources to their generation portfolios and reduce emissions. Investment in expanding and strengthening transmission and distribution lines is making the infrastructure more resilient and enabling utilities to provide 24X7 services to customers even during adverse climatic conditions.

Despite the threat of the new variant of COVID-19, the overall improvement in economic conditions in the United States and the restart of commercial and industrial activities are creating fresh demand for utility services. The increasing customer base of the utilities is expected to have boosted their fourth-quarter performance.

Utilities have been focused on increasing their operational efficiency and enabling efficient usage of electricity by customers. The new utility rates approved by different commissions across the United States are also likely to have positively impacted fourth-quarter earnings.  

Per the National Oceanic and Atmospheric Administration release, the December contiguous U.S. temperature was 39.3 degrees F, 6.7 degrees above average, making it the warmest December on record. No doubt, warmer-than-normal weather conditions in December 2021 are likely to have adversely impacted the demand for utility services. 

Picking Winners From the Utility Space

Choosing the right stock for one’s portfolio from too many participants is certainly a tough job. An easy way to streamline the list is by selecting stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Per our proprietary methodology, Earnings ESP is a determining factor for zeroing in on stocks with the maximum chances of beating on earnings. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Our research shows that stocks with the right combination of the two key ingredients have 70% higher chances of delivering an earnings surprise.

For investors looking to find winners, we have highlighted four Utility stocks that are poised to beat fourth-quarter earnings estimates.

Our Utility Bets for Q4

Service territories of Detroit, MI-based DTE Energy Company (DTE Quick QuoteDTE - Free Report) —  experienced inconsistent weather conditions during the quarter, which is likely to have had an adverse impact on demand. Nonetheless, a favorable tax reversal is expected to have boosted the bottom line.

DTE Energy has an Earnings ESP of +1.06% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

DTE Energy is scheduled to report quarterly results on Feb 10.

Fourth-quarter earnings of Richmond, VA-based Dominion Energy Inc. (D Quick QuoteD - Free Report) — which provides electric and natural gas services to millions of customers in the United States — are likely to have benefited from regulated investment and improving sales from commercial and industrial customer groups. Earnings in the quarter are likely to have been adversely impacted by COVID deferred operating and maintenance expenses.

Dominion Energy has an Earnings ESP of +0.09% and a Zacks Rank #3. Dominion is scheduled to report quarterly results on Feb 11.

Fourth-quarter earnings of Springfield, MA-based Eversource Energy (ES Quick QuoteES - Free Report) — which engages in the delivery of electricity, natural gas, and water to customers — are likely to have benefited from higher contributions from transmission and distribution businesses. Cost-management initiatives are also likely to have boosted margins and strengthened its performance in the fourth quarter.

Eversource Energy has an Earnings ESP of +0.36% and a Zacks Rank #3. Eversource Energy is scheduled to report quarterly results on Feb 17.

Continued economic recovery in the service territories of St. Louis, MO -based Ameren Corporation (AEE Quick QuoteAEE - Free Report) — involved in the generation and distribution of electricity and natural gas to residential, commercial, industrial, and wholesale customers —  must have resulted in higher electric sales, thereby boosting fourth-quarter earnings. Cost-management programs of Ameren are likely to have contributed favorably to its fourth-quarter bottom-line performance.

Ameren has an Earnings ESP of +1.00% and a Zacks Rank #3. AEE is scheduled to report quarterly results on Feb 18.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.