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American Electric Power (AEP) Q2 Earnings: What's Ahead?

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American Electric Power Co., Inc. (AEP - Free Report) will release second-quarter 2016 financial results before the market opens on Jul 28. Last quarter, this utility company reported a negative earnings surprise of 3.77%. Let’s see how things are shaping up prior to this announcement.

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Factors to Consider

American Electric has a stable base of approximately 5.4 million customers spread over 11 states. This provides stability to the company’s revenue stream and insulates it from lower sales in any particular service area.

With unemployment rates falling significantly in the company’s service territories, American Electric expects loads to increase in 2016. The company also expects an upside in residential sales on account of an expected rise customers this year. These factors indicate positive economic fundamentals, which should support its earnings target of $3.60–$3.80 per share for 2016. Declining unemployment rates and the expected rise in industrial sales to customers in the oil and gas-related sectors will likely boost the company’s performance in the to-be-reported quarter.

For the second quarter, the Zacks Consensus Estimate stands at 90 cents for earnings, reflecting year-over-year growth of 2.4%.

On the flip side, in order to meet environmental regulations, the company anticipates an investment of $353.2 million throughout 2016, which being an additional investment, could weigh on its finances.

Earnings Whispers

Our proven model does not conclusively show that American Electric Power will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. But that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -2.22%. This is because the Most Accurate estimate stands at 88 cents, while the Zacks Consensus Estimate is pegged higher at 90 cents.

Zacks Rank: Though American Electric Power’s Zacks Rank #3 increases the predictive power of ESP, we need a positive ESP to be confident about an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter.

Pattern Energy Group Inc. has an Earnings ESP of +100.00% and a Zacks Rank #2. The company is scheduled to release second-quarter results on Aug 8.

NRG Energy, Inc. (NRG - Free Report) has an Earnings ESP of +53.33% and a Zacks Rank #2. The company is scheduled to release second-quarter results on Aug 9.

CMS Energy Corp. (CMS - Free Report) has an Earnings ESP of +11.43% and a Zacks Rank #2. The company is scheduled to release second-quarter results on Jul 28.

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