CMS Energy Corp. (CMS) is slated to report its third-quarter 2014 results before the market opens on Oct 23. In the preceding quarter, CMS Energy had delivered a positive 15.38% earnings surprise. Also, the company had posted an average positive earnings surprise of 10.15% over the past four quarters. Let’s see how things are shaping up for this announcement.
Factors Influencing This Quarter
The company is currently focusing on several factors: capacity maximization, reliability improvement, clean power generation and infrastructure upgrades. It also continues to focus on its Smart Energy program. These initiatives will likely boost profits for the company going forward.
We also appreciate CMS Energy’s sustained efforts to expand its renewable portfolio. Within a time span of 2014 to 2018, CMS Energy’s Consumers electric utility plans to invest $0.2 billion under a renewable energy plan, approved by the Michigan Public Service Commission (MPSC).
By 2015, the company intends to generate 10% of its electricity from renewable sources, including wind, solar, hydro-power, landfill gas, biomass and anaerobic digestion. In Jul 2014, the company selected 22 businesses and residential projects in Michigan to generate solar energy. These initiatives will enable CMS Energy to diversify its generation mix.
However, stringent environmental regulations may pose serious threats for the company going forward. A final coal combustion residual (CCR) rule is expected in late 2014, which may accelerate expenses for the company. Moreover, adverse decisions in regulatory cases may negatively impact its earnings.
Earnings Whispers?
Our proven model does not conclusively show that CMS Energy is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:
Zacks ESP: Earnings ESP for CMS Energy is -11.91%. This is because the Most Accurate estimate stands at 37 cents while the Zacks Consensus Estimate is higher at 42 cents.
Zacks Rank: CMS Energy’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some 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 sports a Zacks Rank #2.
The Empire District Electric Co. (EDE) has an Earnings ESP of +8.89% and sports a Zacks Rank #2.
American Electric Power Co., Inc. (AEP) has an Earnings ESP of +3.85% and sports a Zacks Rank #2.
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