Duke Energy Corp. DUK, the electric and natural gas utility based in Charlotte, NC, is expected to beat expectations when it reports third-quarter 2015 earnings results before the opening bell on Nov 5, 2015. Last quarter, Duke Energy had recorded a 6.86% negative earnings surprise. Let’s see how things are shaping up for the third quarter.
Why a Likely Positive Surprise?
Our proven model shows that Duke Energy is likely to beat earnings because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to beat estimates, and Duke Energy has the right mix.
Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at +0.66%. This is because the Most Accurate estimate of $1.53 per share is higher than the Zacks Consensus Estimate of $1.52. This is a meaningful indicator of a likely positive earnings surprise for the company.
Zacks Rank: Duke Energy currently carries a Zacks Rank #3 (Hold). The combination of Duke Energy’s Zacks Rank #3 and +0.66% ESP makes us positive of a likely earnings beat this season.
However, the Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.
Factors at Play
The company expects to achieve higher EPS contributions in the back half of 2015 from what it has earned in the comparable period last year, as revealed during its second-quarter earnings call. This will mainly be driven by continued growth in contracted wholesale volumes as well as organic growth in retail demand. Also, early completion of the North Carolina Eastern Municipal Power Agency or NCEMPA asset purchase will provide an additional earnings per share impact of around 4 cents in the second half. Earnings from its commercial renewables business are also expected to see an improvement in the second half of the year.
In addition, the warmer-than-expected summer will have a positive impact on utility demand. Hence, Duke Energy’s stable regulated operations, systematic capital investment program and renewable asset expansion will likely provide vital tailwinds.
However, Duke Energy will have to deal with deteriorating demand for electricity in Brazil as well as unfavorable foreign currency exchange rates, which could lower international earnings.
Again, during the third quarter, Duke Energy agreed to pay a $90 million charge, which will be reflected in the quarter itself, to cover a settlement with consumer groups in Indiana related to operating costs of its $3.5 billion Edwardsport coal gasification plant. Duke Energy also reached a settlement with the North Carolina Department of Environmental Quality that holds the company guilty of groundwater contamination at all of its 14 coal ash facilities. It has agreed to an all-encompassing fine of $7 million to resolve all groundwater contamination issues at the shuttered Sutton Plant outside Wilmington as well as 13 other coal plants.
Stocks to Consider
Duke Energy is not the only stock looking up this earnings season. We also see likely earnings beats coming from these three utility peers.
Alliant Energy Corp. LNT has an earnings ESP of +3.17% and a Zacks Rank #3. It is scheduled to release third-quarter earnings on Nov 5, 2015.
Ameren Corporation AEE has an earnings ESP of +1.53% and a Zacks Rank #2. It is scheduled to release third-quarter earnings on Nov 6, 2015.
WEC Energy Group, Inc. WEC has an earnings ESP of +3.39% and a Zacks Rank #3. It is scheduled to release third-quarter earnings on Nov 4, 2015.
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