The AES Corporation (AES Quick QuoteAES - Free Report) is scheduled to report second-quarter 2016 results before the opening bell on Aug 5. Last quarter, the company posted a negative earnings surprise of 31.58%. The company surpassed the Zacks Consensus Estimate in two of the trailing four quarters, still recording an average negative surprise of 9.89%.

Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that AES Corp. is likely to beat earnings this season because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to be able to beat estimates, and AES Corp. has the right mix.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +11.11%. This is because the Most Accurate estimate stands at 20 cents, while the Zacks Consensus Estimate is pegged slightly lower at 18 cents. This is a meaningful indicator of a likely positive earnings surprise.

Zacks Rank: AES Corp.’s Zacks Rank #3, when combined with a positive ESP, makes us reasonably confident of an earnings beat this quarter.

Conversely, Sell-rated stocks (#4 or #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

What’s Driving the Better-than-Expected Earnings?

During the first quarter earnings call, the company hinted at relatively weak first-half 2016 earnings per share due to a scheduled major maintenance in the second quarter. It also mentioned that its first-quarter operating performance was impacted by adverse movements in FX, lower power prices in the U.S. and the expiration of the power purchase agreement at Tietê in Brazil. This will likely continue in the second quarter as well, adversely impacting the bottom line.

However, the company remains on track to achieve its three-year $150 million cost reduction and revenue enhancement goals. AES Corp. aims to achieve $50 million in 2016 and the remaining $100 million through 2018.

Moreover, the impact from hydrology in Latin America should be negligible this year.

AES Corp. excepts the second quarter to be lower than normal. In fact, it had forecast that 70% to 75% of its 2016 adjusted earnings per share would be recorded in the second half of 2016 versus about 60% in past years.

The company has been under pressure of currency headwinds over the past few quarters. Unlike most of the utilities in the U.S., AES Corp. has its presence in many countries, exposing it to currency risk. For that, it is streamlining its business risk profile. During the second quarter, AES Corp. has signed an agreement to sell its entire equity interest in AES Sul in southern Brazil to CPFL Energia S.A. , the largest private utility in the country.

If the U.S. dollar continues to remain strong compared to emerging market currencies, AES Corp.’s earnings may be impacted.

Stocks to Consider

Here are a couple of operators in the electric utility space worth considering, 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 #3. The company is scheduled to release second-quarter results on Aug 8.

Great Plains Energy Inc. (GXP Quick QuoteGXP - Free Report) has an Earnings ESP of +14.63% and a Zacks Rank #2. The company is expected to release second-quarter results on Aug 4.

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