Utility stocks started the Q3 reporting cycle on a strong note, with NextEra Energy (NEE - Free Report) beating estimates on both counts. Keeping up its trend, we expect utilities to witness top- and bottom-line year-over-year growth this earning season.
Factors Likely to Drive Q3 Results
The Federal Reserve’s decision to lower the nation’s interest rates in July and September must have acted as a key growth catalyst for the capital-intensive utility stocks. The interest rate cuts are expected to have lowered utilities’ cost of capital, which, in turn, is likely to have positively impacted margins and thereby the bottom line.
Moreover, factors like new rates in their service territories, customer growth coupled with effective management and control of expenses through the introduction of technologies are likely to have boosted utilities’ third-quarter earnings. During the quarter, mature utilities gained from the launch of technologies to maintain transmission and distribution lines, and gradual introduction of smart meters in their service territories for improving the resilience of services.
For the domestic-focused matured Utility sector, Q3 earnings are expected to increase 4.1% year over year on 4.1% higher revenues.
Impressively, Utility is one of the six of the 16 Zacks sectors that are likely to come up with improved year-over-year earnings in the current reporting cycle. For more details on quarterly releases, you can go through the latest Earnings Preview.
Utilities to Watch
Let's take a look at some Utility stocks that are scheduled to report third-quarter 2019 earnings on Oct 24 and find out how things have shapped up prior to the announcement.
American Electric Power Company, Inc. (AEP - Free Report) outperformed the Zacks Consensus Estimate in the trailing four quarters, the average being 2.96%. For the most part of the third quarter, American Electric’s service territories experienced temperatures that are likely to have resulted in higher electricity demand. This, in turn, must have boosted the company’s top-line growth. Anticipating commencement of new projects during the third quarter, American Electric’s Q3 results are likely to reflect year-over-year growth.
According to the Zacks model, a company needs the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
American Electric has an Earnings ESP of +2.68% and a Zacks Rank #2 (Buy) (read more: American Electric to Report Q3 Earnings: Will It Beat?).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Xcel Energy Inc. (XEL - Free Report) delivered average negative earnings surprise of 3.81% in the trailing four quarters. The company’s third-quarter earnings are likely to have benefited from the completion of the Texas-based 478-megawatt Hale Wind farm in June 2019. Moreover, an expected decline in operating costs, due to lower plant outage in nuclear operation, may have boosted its bottom line.
Xcel Energy has a Zacks Rank #3 and an Earnings ESP of 0.00%, which makes surprise prediction difficult (read more: What's in the Cards for Xcel Energy in Q3 Earnings?).
FirstEnergy Corporation (FE - Free Report) delivered average positive earnings surprise of 4.24% in the trailing four quarters. The company’s Energizing the Future plan, which has reduced transmission outages caused by equipment failures as well as improved reliability, resiliency and security, is likely to have positively impacted the company’s performance in the third quarter.
FirstEnergy has a Zacks Rank #3 and an Earnings ESP of 0.00% (read more: FirstEnergy to Report Q3 Earnings: What's in Store?).
CMS Energy Corporation (CMS - Free Report) delivered average negative earnings surprise of 6.63% in the trailing four quarters. During most of the third quarter of 2019, the company’s service territories experienced heavy precipitation. Such weather conditions are likely to have resulted in higher electricity demand, which, in turn, must have boosted CMS Energy’s top line in the third quarter. However, strong storm activity in the months of August and September might have pushed up its expenses.
CMS Energy has a Zacks Rank #3 and an Earnings ESP of -11.27%, which makes surprise prediction difficult (read more: CMS Energy to Report Q3 Earnings: What's in Store?).
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