As of Aug 4, 86.7% of the S&P 500 index’ market cap has come up with quarterly results. Out of this, 74.3% came up with an earnings beat, while 68% surpassed revenue estimates.
Overall, earnings are now expected to record a 10% increase on 5.1% higher revenues. Notably, the picture has improved, with expectations being 7.9% for earnings growth at the start of the quarter.
Coming to the Utility sector, 96.6% of the stocks in this space have reported their quarterly results as of Aug 4. Of them, 67.9% came up with an earnings beat, while 58.8% exceeded revenue estimates. This reflects an improvement from the earnings beat ratio of 64.7%, with 57.1% having exceeded revenue estimates, as of Aug 2. For more details on quarterly releases, you can go through our Earnings Preview.
Notably, companies in this space, characterized by their defensive nature and domestic orientation, 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 is likely to hurt the utilities.
On a brighter note, 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, which has further boosted growth prospects for these utilities as opposed to those that are engaged in expanding their renewable resources.
Let’s take a look at three utilities – The AES Corporation (AES - Free Report) , Pattern Energy Group, Inc. (PEGI - Free Report) , and Wester Energy, Inc. – which are scheduled to release quarterly results on Aug 8.
AES Corp reported a negative earnings surprise of 15.00% in the last quarter. Moreover, the company missed the Zacks Consensus Estimate in the trailing four quarters, the average negative surprise being 6.59%.
Our proven model shows that AES Corp 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 AES Corp has the right mix.
The company has an Earnings ESP of +4.76%. That is because the Most Accurate estimate is pegged at 22 cents, higher than the Zacks Consensus Estimate of 21 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The company currently carries a Zacks Rank #2, which, when combined with a positive ESP, makes us reasonably confident of an earnings beat this quarter.
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 (read more: AES Corp to Report Q2 Earnings: Is a Beat in the Cards?).
Pattern Energy reported a positive earnings surprise of 100% in the prior quarter. Moreover, it surpassed the Zacks Consensus Estimate in two of the last four quarters, with an average positive earnings surprise of 77.28%.
The Earnings ESP for Pattern Energy is 0.00%, because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 13 cents. The company carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Therefore, Pattern Energy is unlikely to beat earnings as it does not have the right combination of the two key ingredients.
Wester Energy reported a negative earnings surprise of 8.70% in the last quarter. Moreover, it has missed the Zacks Consensus Estimate in three of the last four quarters, with an average negative earnings surprise of 4.68%.
The Earnings ESP for Wester Energy is 0.00%, because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at earnings of 56 cents. The company carries a Zacks Rank #4.
Our proven model shows that Wester Energy is unlikely to beat earnings as it does not have the right combination of the two key ingredients.
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