We expect American Electric Power Co., Inc. (AEP) to beat expectations when it reports third quarter 2014 results before the opening bell on Oct 23.
Last quarter American Electric posted a 6.67% positive surprise. Let’s see how things are shaping up for this announcement.
What is Driving the Better-than-Expected Earnings?
The U.S. electric utility giant has taken calculated measures to spur its regulated business as the unregulated business operations have shown signs of weakness owing to fluctuating power markets. The company has strong capital outlay in place for customer-driven projects, aging infrastructure, local reliability plans and renewable programs. It plans to spend around $11.9 billion from 2014 through 2016 on these programs.
A major part of the capital spending will be directed towards the company’s regulated transmission operations. In addition, American Electric’s effort to strengthen its unregulated wing will add to the steady cash flows from its sound regulated operations.
Recently, American Electric’s subsidiary, AEP Energy, has tied up with Globant, a new-breed technology service provider that delivers innovative software services. With the help of new technology, the company will win the confidence of its customers offering reliable services. On its second quarter earnings call, the company affirmed its earnings guidance for 2014 in the range of $3.35–$3.55 per share.
Why a Likely Positive Surprise?
Our proven model shows that American Electric Power is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at +3.85%. This is a meaningful and leading indicator of a likely positive earnings surprise for the shares.
Zacks Rank: American Electric Power is currently carrying a Zacks Rank #2 (Buy). Note that stocks with Zacks Ranks #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of American Electric’s Zacks Rank #2 and +3.85% ESP makes us confident of an earnings beat this season.
Other Stocks to Consider
American Electric Power is not the only firm looking up this earnings season. We also see likely earnings beats coming from these three industry peers.
Consolidated Edison, Inc. (ED) has an earnings ESP of +2.80% and a Zacks Rank #2 (Buy).
The Empire District Electric Company (EDE) has an earnings ESP of +8.89% and a Zacks Rank #2 (Buy).
Southern Company (SO) has an earnings ESP of +1.87% and a Zacks Rank #2 (Buy).
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