NRG Energy, Inc. (NRG) is set to report third-quarter 2014 results on Nov 5, 2014. Last quarter, the company had posted a negative earnings surprise of 330.77%. On an average, NRG Energy has posted a 98.47% negative surprise in the last four quarters. Let’s see how things are turning out for the third quarter.
Factors to Consider This Quarter
A mild summer in 2014 will likely impact the utility demand adversely. Thus, NRG Energy’s third-quarter earnings are expected to decrease both year over year and sequentially.
The company's cost of operations has followed an increasing trend for the past several quarters, mainly due to rising generation cost of sales. If NRG Energy fails to reduce its expenses, it will continue to eat into the company's margins.
Although NRG Energy’s systematic investments in acquisitions and organic growth projects and steady focus on renewable ventures are likely to boost the company’s future performance, these may not be enough to counter low demand in this quarter.
Earnings Whispers
Our proven model does not conclusively show that NRG Energy is likely to 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) for this to happen. This is not the case here.
Negative Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -33.33%. This is because the Most Accurate Estimate is at 46 cents per share while the Zacks Consensus Estimate is at 69 cents per share.
Zacks Rank #3 (Hold): NRG Energy’s Zacks Rank #3 when combined with a negative ESP makes a surprise 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.
Other Stocks to Consider
Here are some utility companies worth considering as our model shows they have the right combination of elements to post an earnings beat this quarter.
Consolidated Edison, Inc. (ED) has an earnings ESP of +2.80% and carries a Zacks Rank #2.
Dynegy Inc. (DYN) has an earnings ESP of +260.00% and carries a Zacks Rank #3.
Duke Energy Corp. (DUK) has an earnings ESP of +0.66% and carries a Zacks Rank #3.
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