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Utility Stocks Reporting Q4 Earnings on Feb 27: AEP, SRE & PNW

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The Zacks Utilities sector’s fourth-quarter 2023 earnings are expected to have been driven by planned investments to further improve its operations, cost-saving initiatives and usage of new technologies that helped in increasing the reliability of its services and lowering operating and maintenance expenses.

Per the latest Earnings Preview, the Zacks Utilities sector’s fourth-quarter earnings are expected to have increased 15.3% year over year on a decline of 4.7% in revenues. The utilities might have been affected due to warmer-than-normal weather patterns in most of the fourth quarter. However, new utility rates implemented in the service territories and customer growth are likely to have boosted profits.

Factors to Consider

Utilities continue to make prudent capital expenditures that reduce operating, fuel, maintenance and upkeep expenses. As a result, customers benefit from saving money on their utility costs. Utilities have reduced costs while simultaneously improving overall operations and efficiency through digital technology investments, crucial system connections and data-driven decision-making.

Various positive aspects, such as new electric tariffs, customer additions, cost control and the execution of energy-efficiency initiatives, continue to benefit utilities. Also, the ongoing investments to further improve the resiliency of electric infrastructure against extreme weather conditions and the transition to cost-effective, renewable energy sources to produce electricity are expected to have benefited the power industry.

Most of the utility companies have pledged to deliver 100% clean energy and achieve the zero-emission target in the coming years. As a result, these companies have been reducing their use of coal and other polluting sources in their generating portfolios and increasing the use of clean, renewable energy sources in their production portfolios.

Still-high interest rate environment that remained in the United States during the fourth quarter is likely to have caused higher borrowing expenses for the capital-intensive utilities. As a result, increased interest expenses might have had a negative impact on the sector's profitability.

Fourth-quarter weather patterns were warmer than normal for most of the fourth quarter across the service territories, with below-average precipitation. In November, some of the regions experienced snowfall. Overall, the weather is expected to have had a moderate effect on utilities' fourth-quarter top-line performance.

What Our Model Predicts

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

American Electric Power Company, Inc.’s (AEP - Free Report) quarterly results are likely to have benefited from increased retail load, transmission revenues as well as positive rate changes in Texas and Ohio. The company's profitability might have been supported by the positive impacts of better investments made in the previous quarters as well as strong sales projections, even in the face of negative effects from increased depreciation and interest expenses. (Read more: What's in Store for American Electric in Q4 Earnings?)

Our proven model predicts an earnings beat for American Electric Power this time around. AEP has an Earnings ESP of +2.36% and a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sempra Energy’s (SRE - Free Report) fourth-quarter earnings are likely to have gained from favorable rate base observed in the prior quarters, customer growth and cost-saving initiatives. Growth in multiple areas of Oncor service territory and the premier energy-producing region, the Permian Basin, might have also contributed positively. However, still-high interest rates, transportation tariffs and lower income tax benefits are likely to have negatively impacted the company’s bottom line. (Read more: What's in the Cards for Sempra This Earnings Season?)

Our proven model predicts an earnings beat for Sempra Energy this time around. SRE has an Earnings ESP of +0.29% and a Zacks Rank #3 at present.

Sempra Energy Price and EPS Surprise

Sempra Energy Price and EPS Surprise

Sempra Energy price-eps-surprise | Sempra Energy Quote

Pinnacle West Capital Corporation’s (PNW - Free Report) fourth-quarter revenues are expected to have benefited from retail customer growth and an increase in electricity sales, owing to strong growth in the Arizona region. However, still-high interest rates and increased depreciation and amortization must have offset some positives in the to-be-reported quarter. (Read more: What's in Store for Pinnacle West Capital in Q4 Earnings?)

Our proven model does not predict an earnings beat for Pinnacle West Capital this time around. PNW has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell) at present.

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


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Sempra Energy (SRE) - free report >>

American Electric Power Company, Inc. (AEP) - free report >>

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