Edison International (EIX) is set to report third-quarter 2014 results on Oct 28 after the market closes. Last quarter, the company had posted a positive earnings surprise of 30.12%. The company’s earnings surprise history looks unblemished over the trailing four quarters, with an average beat of 20.52%. Let's see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Edison International 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 ESPP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat the estimates, and Edison International has the right mix.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +3.70%. This is because the Most Accurate estimate stands at $1.40 while the Zacks Consensus Estimate is pegged lower at $1.35. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Edison International currently carries a Zacks Rank #3 (Hold).
Edison International's Zacks Rank #3 and positive ESP make us reasonably confident of a positive earnings beat.
Note that stocks with Zacks Ranks #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
What is Driving the Better-than-Expected Earnings?
Rosemead, CA-based Edison International, through its subsidiaries, engages in the supply of electric energy in central, coastal and southern California. The company’s chief unit – Southern California Edison or SCE – operates in a supportive regulatory environment, which would allow the utility to grow to stronger levels in a rebounding economy. Through 2017, SCE continues to target 7–9% average annual rate base and earnings growth driven by infrastructure investment.
With a strong portfolio of regulated utility assets and well-managed merchant energy operations, Edison International presents a lower risk profile compared to its utility-only peers. The company is also implementing infrastructure improvement programs, focusing mainly on system reliability, smart grid technology and compliance with the state of California’s renewable energy regulations through programs like SmartConnect and Solar Photovoltaic Program.
The utility is keen on adding renewable assets to its portfolio. In Aug 2014, SCE signed contracts with solar and geothermal energy producers representing more than 1,500 megawatts (MW) of clean, renewable power. The contracts comprise the purchase of over 1,300 MW of new solar power and the re-contracting of 225 MW with an existing California geothermal energy project. These initiatives will enable Edison International to diversify its generation mix and abide by environmental regulations.
Stocks That Warrant a Look
Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:
Consolidated Edison, Inc. (ED) has an Earnings ESP of +2.80% and holds a Zacks Rank #2.
The Empire District Electric Co. (EDE) has an Earnings ESP of +8.89% and holds a Zacks Rank #2.
Southern Co. (SO) has an Earnings ESP of +1.87% and carries a Zacks Rank #2.
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