The Q2 earnings season has crossed the halfway mark. As of Jul 28, 286 S&P 500 members came up with quarterly earnings. Total earnings are up 11.3% from the same period last year on 6.1% higher revenues. 74.5% of the companies beat EPS estimates while 69.2% topped revenue estimates.
Nearly 1000 companies – including 130 S&P 500 members – are expected to come up with results this week. Combining the results of the reported index members (286 members till Jul 28) with the remaining 214 members of S&P 500, earnings are estimated to improve 9.2% on 5.0% higher revenues.
Let us now focus on the Utility sector, which is characterized by its defensive nature and domestic orientation. Initially, when the season started, we expected earnings to drop 2.9%. However, as the season gradually unfolds, we expect utility earnings to drop 1.8%.
The utility sector is capital-intensive. These companies need huge capital to set up generation facilities, and transmission and distribution infrastructure. They also require considerable funds to maintain and upgrade the existing systems in order to meet emission-control standards. Utilities have been benefiting from the rock-bottom interest rate environment. However, the Federal Reserve has raised the rates twice in 2017 – in March and June. This will definitely hurt the utilities. The Fed has maintained its forecast for one more rate hike in 2017.
The U.S. coal-based utilities got a respite with President Trump’s decision to repeal the Climate Power Plan. Moreover, Trump has walked out of the Paris Climate Agreement.
Four out of the 16 sectors in the Zacks coverage universe are expected to witness an earnings decline this season. Read more details in our weekly Earnings Preview.
Let’s take a look at a few utilities that are scheduled to report quarterly numbers on Aug 3.
Pinnacle West Capital Corporation (PNW - Free Report) reported a positive earnings surprise of 40% in the previous quarter. The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Pinnacle West Capital’s Earnings ESP is +4.31%. This is because the Most Accurate estimate is pegged at $1.21, higher than the Zacks Consensus Estimate of $1.16. According to our proven model, stocks with the combination of a positive ESP and a Zacks Rank #1, 2 (Buy) or 3 have increased chances of beating estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The company is likely to beat earnings because it has the right combination of the two key ingredients (read more: Pinnacle West in Q2 Earnings: A Beat in the Cards?).
Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Consolidated Edison, Inc. (ED - Free Report) reported a positive earnings surprise of 6.72% in the previous quarter. The company currently carries a Zacks Rank #4.
Consolidated Edison’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 61 cents.
Hence, it is unlikely to beat earnings as the company does not have the right combination of the two key ingredients (read more: Will Consolidated Edison Disappoint in Q2 Earnings?).
OGE Energy Corporation (OGE - Free Report) reported a positive earnings surprise of 5.88% in the previous quarter. The company currently carries a Zacks Rank #3.
OGE Energy’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 47 cents.
It is unlikely to beat earnings as it does not have the right combination of the two key ingredients.
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