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Sempra Energy (SRE) to Report Q2 Earnings: A Beat in Store?

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Sempra Energy (SRE - Free Report) will report second-quarter 2017 earnings results before the opening bell on Aug 4.

Last quarter, the company posted a negative earnings surprise of 9.43%. Moreover, the company surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive surprise of 0.16%.

Let’s see how things are shaping up at the company prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Sempra Energy is likely to beat estimates 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 Huntington Ingalls has the right mix.

Zacks ESP: Earnings ESP for the company is +11.25%. This is because the Most Accurate estimate stands at 89 cents, higher than the Zacks Consensus Estimate of 80 cents. This is a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Sempra Energy holds a Zacks Rank #2, which, when combined with a positive ESP, makes us reasonably confident of an earnings beat this quarter.

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

Sempra Energy Price and EPS Surprise

Sempra Energy Price and EPS Surprise | Sempra Energy Quote

Factors at Play

At the onset of the second quarter, Sempra Energy issued its long-term outlook, wherein apart from reiterating its 2017 EPS guidance, the company announced plans to invest $14.2 billion over the next five years. The announcement also included a projected compound annual growth rate (CAGR) for EPS in the range of 10–11% and completion of 100 megawatts renewable projects, over the same period. Although the overall impact of these plans will be realized over the long term, the company most likely has started taking initiatives toward achieving them, which is expected to get reflected in the upcoming second-quarter results as well.

During its first-quarter earnings call, Sempra Energy announced that its IEnova unit projects will complete three natural gas pipelines, worth $900 million by the end of the second quarter. Further updates on this project can be expected once Sempra Energy releases its second-quarter results. If completed, it will successfully boost the company’s growth.

On the flip side, the Aliso Canyon gas leak event caused the company to incur estimated cost of $799 million in the first quarter, higher than the prior-quarter figure. Although, the company has resolved a number of key issues related to this event, there still remain a few that might continue to weigh down on the second-quarter results.

Moreover, Sempra Energy faces foreign exchange exposure in Mexcio and South America, wherein it does not hedge the additional costs. These may hurt the company’s earnings in the to-be-reported quarter.

For the second quarter, the Zacks Consensus Estimate for earnings stands at 80 cents, reflecting a year-over-year increase of 1.77%. Meanwhile, the estimate for revenues is pegged at $2.52 billion, displaying a 16.75% upside.

Other Stocks that Warrant a Look

Here are a few other Utility stocks worth considering on the basis of our model, which shows that they have the right combination to pull off a beat.

Ameren Corp. (AEE - Free Report) will report second-quarter results on Aug 4. The company has an Earnings ESP of +4.35% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The AES Corp. (AES - Free Report) has an Earnings ESP of +20.00% and a Zacks Rank #2. The company is expected to report second-quarter results on Aug 8.

Pinnacle West Capital Corporation (PNW - Free Report) has an Earnings ESP of +4.31% and a Zacks Rank #3. The company is slated to release second-quarter results on Aug 3.

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