Utility Stocks’ Q2 Earnings Roster for Aug 3: AEE, CNP & More

The Q2 earnings season is in full swing, with 327 S&P 500 members having released their quarterly numbers as of Aug 1. Reported earnings for these index members increased 24.1% year over year on 10% higher revenues. Among them, 80.1% delivered positive earnings surprises while 73.4% surpassed top-line expectations.

Combining the results of the 327 S&P 500 members with the index’s 173 members that are yet to release their Q2 results, we expect total second-quarter earnings to improve 23.7% year over year on 8.9% higher revenues, with double-digit bottom-line growth expected for 13 of the 16 Zacks sectors.

Given this backdrop, let us focus on the Zacks Utilities sector, which is characterized by its defensive nature and domestic orientation. Total Q2 earnings for stocks in this space are anticipated to increase 12.5% year over year, while no movement in revenues is expected, as of Aug 1. For more details on quarterly releases, you can go through the latest Earnings Outlook.

Notably, utility stocks’ bottom line in Q2 is expected to benefit from the new rates in their service territories, customer growth and effective management of expenses.

Unemployment rate in the United States during the current reporting cycle was in the 3.8-4.0% range. This historic low level of unemployment boosted demand for new housing units and in turn the requirement for utility services. Per a U.S. Energy Information Administration ("EIA") report, electricity demand from residential, commercial and industrial sectors during the first half of 2018 improved from the year-ago period.

However, these utilities do have their share of challenges such as a rising debt level, stringent regulations and the hurricane season, which can wreak havoc on infrastructure. Rising interest rates (the Federal Reserve hiked interest rates in June, marking the seventh increase since December 2015) make bonds a strong investment option compared with utility investment. Despite the rate hikes, we find some of the utilities fundamentally strong enough to come up with positive earnings surprise this season.

Let us take a sneak peek at the following four utility stocks scheduled to release Q2 results on Aug 3.

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ameren Corp. AEE delivered a positive earnings surprise of 6.90% in the last reported quarter. The company also outperformed the Zacks Consensus Estimate in three of the trailing four quarters, with an average beat of 7.69%.

Ameren expects its second-quarter earnings to gain from a rise in Missouri electric service rates, increased transmission and electric distribution infrastructure investments.

At the beginning of Q2, the company’s majority service territories experienced colder-than-normal temperature, while warmer-than-normal temperature prevailed toward the end. So, overall climate remained favorable across Ameren’sservice territories, which in turn should boost electric demand and thereby its revenues in the yet-to-be-reported quarter.

Impressively, Ameren has an Earnings ESP of +1.69% and a Zacks Rank #2, which increases the odds of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here (read more: Is a Beat in the Cards for Ameren in Q2 Earnings?).

CenterPoint Energy, Inc. CNP pulled off a positive earnings surprise of 25.00% in the last reported quarter. It also outpaced the Zacks Consensus Estimate in three of the trailing four quarters, with an average beat of 17.06%.

In later part of Q2, the company’s service territories witnessed warmer-than-normal temperature, which should lead to a rise in electricity demand in these regions. Thus, overall the climate during the quarter remained favorable for CenterPoint Energy’s revenue growth. In line with this, the Zacks Consensus Estimate for second-quarter revenues of $2,159 million, reflects an improvement of 0.8% year over year.

CenterPoint Energy has an Earnings ESP of +0.93% and a Zacks Rank #2, a combination that increases the chances of an earnings beat (read more: CenterPoint Energy Q2 Earnings: Is a Beat in Store?).

Pinnacle West Capital Corporation PNW came up with a negative earnings surprise of 70.00% in the last reported quarter. However, the company surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with an average beat of 13.51%.

The company’s second-quarter earnings results are expected to benefit from the rate hikes, whereas planned outages are going to offset these positives to some extent.

Pinnacle West has an Earnings ESP of +1.88% and a Zacks Rank #3, which is a favorable combination indicating a likely positive earnings surprise this season (read more: What's in Store for Pinnacle West in Q2 Earnings?).

Brookfield Renewable Partners L.P. BEP delivered a positive earnings surprise of 50.00% in the last reported quarter. Also, the company exceeded the Zacks Consensus Estimate in two of the trailing four quarters, with an average beat of 4.17%.

The chances of Brookfield Renewable beating the Zacks Consensus Estimate are less, even though it has a Zacks Rank of 2. This is because it has an Earnings ESP of 0.00%.

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