Diversified energy company, FirstEnergy Corp. (FE) is scheduled to report third-quarter 2014 results before the opening bell on Nov 4. Last quarter, FirstEnergy posted a 6.67% positive earnings surprise. Let’s see how things are shaping up for the third quarter.
Factors to Consider This Quarter
FirstEnergy engages in the generation, transmission and distribution of electricity, energy management and other energy-related services through its subsidiaries and affiliates.
As FirstEnergy operates in a competitive space, maintenance of quality is essential to retain and expand its customer base. In the quarter under review FirstEnergy has been busy upgrading substations and circuits in some of its subsidiaries while replacement initiatives of utility poles are still underway.
A major part of FirstEnergy’s generating capacity comes from coal-fired and nuclear power units, which expose it to environment related regulatory risks. Regulatory compliance would necessarily lead to higher operating costs and constrain margins.
Earnings Whispers?
Our proven model does not conclusively show that FirstEnergy will beat earnings this quarter. That is because 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 consensus estimates. That is not the case here as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -1.12%. This is because the Most Accurate Estimate is at 88 cents and the Zacks Consensus Estimate is at 89 cents per share.
Zacks Rank: FirstEnergy’s Zacks Rank #3 when combined with a -1.12% ESP makes an earnings prediction difficult.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some stocks in the utility space you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this season:
Consolidated Edison, Inc. (ED) has an earnings ESP of +2.80% and a Zacks Rank #2 (Buy).
ALLETE, Inc. (ALE) has an earnings ESP of +2.78% and a Zacks Rank #3 (Hold).
Duke Energy Corp. (DUK) has an earnings ESP of +0.66% and a Zacks Rank #3 (Hold).
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