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Utility Stocks' Q2 Earnings Due on July 27: AWK, AEP, SJW & NWE

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The Zacks Utilities sector is off to a strong start to the second-quarter earnings season, with NextEra Energy (NEE - Free Report) and NextEra Energy Partner (NEP - Free Report) beating the Zacks Consensus Estimate by 8% and a whopping 770%, respectively.

The revival of demand from the commercial and industrial groups of customers has been assisting the utility operators. Improvement in economic conditions after the pandemic has been generating fresh demand for utility services.

The performance of the capital-intensive utilities is likely to have been adversely impacted by the increase in interest rates from the near-zero levels. The increase in borrowing costs and the possibility of more interest rate hikes this year will further hike capital servicing expenses and adversely impact earnings.

Domestic-focused companies operating in the sector are working to offset the impact of rate hikes through cost management and the implementation of energy-efficiency programs. New rates and customer additions are creating fresh demand as well as assisting the utilities. Investment in strengthening the infrastructure is allowing the utilities to provide services even during extreme conditions leading to its stable earnings.

Utilities are gradually moving toward clean sources of fuel to produce electricity and lower emission. The stringent regulation of emissions and the high cost of conventional fuel are also urging the utilities to take a decision and focus more on clean energy sources. Many utilities have already pledged to provide 100% electricity from clean sources in the next few decades.

Per the updated outlook of National Oceanic and Atmospheric Administration, the summer of 2022 is expected to be drier and hotter than normal temperatures. This would undoubtedly lead to higher demand for water and electricity for cooling purposes, benefiting the utilities.

Per the latest Earnings Trends report, the utility sector’s second-quarter earnings are expected to decline 6.6%, while revenues are estimated to improve 0.5%.

According to the Zacks model, a company needs the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

American Water Works Company’s (AWK - Free Report) second-quarter earnings are likely to have benefited from efficient cost management and new water rates, effective in different territories. The ongoing addition in customer volume due to acquisitions and organic means is likely to have increased the demand for water and wastewater services as well as boosted earnings in the second quarter. (Read more: American Water to Post Q2 Earnings: What's in Store? )

Our proven model predicts an earnings beat for American Water Works this time around. AWK has an Earnings ESP of +1.46% and a Zacks Rank of 3.

American Electric Power Company’s (AEP - Free Report) second-quarter earnings are likely to have benefited from strong contribution from its transmission and distribution utilities and efficient cost management offset by severe weather conditions in some service territories disrupting services. (Read  more: What's in Store for American Electric in Q2 Earnings?)

Our proven model predicts an earnings beat for American Electric Power this time around. AEP has an Earnings ESP of +6.20% and a Zacks Rank of 2 (Buy).

SJW Group’s (SJW - Free Report) second-quarter earnings are likely to have benefited from the contribution of assets acquired in first-quarter 2022 and from its organic initiatives. The expanding Texas operation is also expected to have contributed to its earnings.

Our proven model does not conclusively predict an earnings beat for SJW Group this time around. SJW has an Earnings ESP of 0.00% and a Zacks Rank of 3.

SJW Group Price and EPS Surprise

SJW Group Price and EPS Surprise

SJW Group price-eps-surprise | SJW Group Quote

NorthWestern Corporation’s (NWE - Free Report) second-quarter earnings are likely to have benefited from organic growth and rate revision but higher operating expenses and dilution from equity issue to fund capital projects is expected to offset the gains.

Our proven model does not conclusively predict an earnings beat for NorthWestern Corporation this time around. NWE has an Earnings ESP of +1.89% and a Zacks Rank of 4 (Sell).

NorthWestern Corporation Price and EPS Surprise

NorthWestern Corporation Price and EPS Surprise

NorthWestern Corporation price-eps-surprise | NorthWestern Corporation Quote

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