3 Utility Stocks to Top Earnings Estimates
The utility sector - a lifeline for the development of any country
- is in the midst of a business and technology transformation in
the U.S. With stringent environmental regulations in place,
utilities are now gradually shifting their mode of power generation
to natural gas and alternate energy sources. Global concerns about
the pitfalls of green-house gas emissions supported by increasing
restrictions on fossil-fuel usage have brought alternative energy
into the limelight.
While the fortunes of some industries are more allied to the
overall economy than others, few show as little volatility and are
as stable as the utility sector. The times are indeed uncertain
given the lingering political tensions between Russia and Ukraine,
concerns of a slowdown in the world's largest economy, namely,
China and less-than-expected growth in Japan. For risk-averse
investors the utility sector seems to be a good bet in uncertain
times. Demand for utility services stay primed no matter what the
economy is doing.
Moreover, utilities have been known to pay dividends consistently,
thereby retaining the confidence of yield hungry investors and
proving yet again the sector's defensive characteristics.
This sector has also shunned the broader market downtrend lately
and has been outperforming the broader market indices since the
start of the year. Climate changes have brought about severe
fluctuations in the weather. The last winter was a case in point.
Most of the earnings beats that have been reported this season like
DTE Energy Company
(DTE) came on the back of a severe winter with the U.S. seeing
precipitous drop in temperatures in more than a decade.
How to Make a Choice?
With a number of industry players, selecting the correct stocks may
appear to be a daunting task. This is where our proprietary
methodology comes in handy. It's fairly simple - stocks with the
combination of a favorable Zacks Rank - Zacks Rank #1 (Strong
Buy), #2 (Buy) or #3 (Hold) - and a positive Zacks
are the ones that are likely to beat earnings estimates this
Earnings ESP is our proprietary methodology for determining stocks
that have high chances of delivering earnings surprises in their
next earnings announcement. It shows the percentage difference
between the Most Accurate Estimate and the Zacks Consensus
Estimate. Our research shows that for stocks with this combination,
the chance of a positive earnings surprise is as high as 70%.
Now, for the utility sector, the earnings picture for the first
quarter has so far showed impressive numbers. With 47.1% of the
companies in the sector having already released their first quarter
earnings this season, the sector racked up an earnings beat ratio
(the percentage of companies coming out with positive surprises) of
81.3% and a revenue beat ratio of 56.3%. Earnings shot up 22.4% in
the first quarter 2014, mostly on the back of a severe winter.
Given the positive sentiment, it might be a good idea to bet on
three utility stocks that are poised to beat earnings estimates
With a market cap of $9.75 billion, this St. Louis based company
generates and distributes electricity and natural gas to
residential, commercial, industrial and wholesale end markets in
Missouri and Illinois.
It is worth noting that in the fourth quarter 2013 Ameren had
delivered an impressive 58.3% earnings surprise. With its recent
exit from the merchant generation business - Ameren Energy
Resources Company - Ameren is now more focused on its
rate-regulated utilities. Now that the divestiture is complete, we
expect Ameren to witness modestly rising earnings at its core
utilities, primarily in Illinois, over the long term.
Ameren's current dividend yield of 3.98% is higher than the
industry as well as the S&P 500 peer group average of 2.63% and
The combination of Ameren's Zacks Rank #3 (Hold) and +6.25% ESP
makes us confident of an earnings beat on May 8 before the bell.
UIL Holdings Corporation
UIL Holdings is engaged in the ownership of its operating regulated
utility businesses. The company recently announced its plan to
acquire assets along with certain liabilities of the nation's
largest municipally-owned natural gas utility - Philadelphia Gas
Works - from the City of Philadelphia for $1.86 billion in cash.
This takeover is a strategic fit for UIL Holdings. It will
significantly enhance the company's natural gas operations, making
it a more geographically diversified energy delivery utility
holding company serving over 1.2 million gas and electric
customers. The proximity to profuse regional gas supply in the
Marcellus and Utica shales is an added bonus. Further this addition
will enhance UIL's scale and financial profile and will deliver
significant long-term benefits to its shareholders.
With a Zacks Rank #3 (Hold), the stock currently has an impressive
dividend yield of 4.81%, much higher than the industry average of
2.11%. Last quarter, the company delivered a positive earnings
surprise of 25.86%.
UIL Holdings is scheduled to announce its first quarter 2014
financial results on May 7 after the market close and has an
Earnings ESP +5.77%.
Westar Energy, Inc.
Topeka, KS based Westar Energy provides electricity to retail as
well as wholesale customers. The company utilizes coal, natural
gas, uranium, wind and landfill gas for electricity generation.
Westar Energy's capital spending program amply reveals its plans to
upgrade utility assets and add new ones. Westar Energy is in the
middle of several projects, including the Post Rock Wind Farm
project, Ironwood Wind Power project and Prairie Wind joint
venture. Successful completion of these projects will enable Westar
Energy to serve more customers, thereby boosting its financial
In the fourth-quarter 2013, the company had delivered a positive
earnings surprise of 14.29% driven primarily by higher prices,
while the four-quarter trailing average beat is pegged at an
The company's annual dividend yield of 3.98% is higher than the
industry average of 2.11%. This makes the company attractive to
This Zacks Rank #2 (Buy) stock still has enough fundamentals to
drive it upward. It has an Earnings ESP +2.27% and is expected to
report first quarter earnings on May 8 after the market close.
For investors looking for a regular return on investment, the
dividend yield from all the three utilities discussed above is
higher than the industry averages. Their stable earnings
performance also offers solid reasons to explore the utility space.
Backed by a favorable Zacks Rank and a positive Earnings ESP, these
could be a great idea for investors to still gain from the Q1
AMEREN CORP (AEE): Free Stock Analysis Report
UIL HOLDINGS CP (UIL): Free Stock Analysis
WESTAR ENERGY (WR): Free Stock Analysis Report
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