Will Higher Costs Mar DTE Energy (DTE) Earnings This Season? - Analyst Blog


DTE Energy Company ( DTE ) is set to report second-quarter 2014 results before the market opens on Jul 25. In the last quarter, the company delivered a positive 19.86% earnings surprise. Let's see how things are shaping up for this announcement.

Factors to Consider This Quarter

DTE Energy continues to diversify its power generation mix by expanding the renewable asset base. Recently, the Obama administration rolled out its plan to curb carbon emissions from power plants by 30% by 2030. The rule is expected to come into effect next year. Hence, the company is investing substantially to construct and upgrade its renewable utility infrastructure to comply with stricter regulations.

In June, the company acquired the 75-megawatt Pheasant Run II wind park from a unit of NextEra Energy, Inc. ( NEE ). In Mar 2014, DTE Energy completed a construction project related to the conversion of a closed coal-fired power plant to a biomass operation. The company plans to invest around $1.1 billion within a time span of 2008 to 2015. The scheduled completion of these ventures will enable DTE Energy to achieve the state of Michigan's renewable goal of 10% by 2015.

True to the defensive nature of all utilities, DTE Energy pays regular dividends. In Jun 2014, the DTE board approved a 5.3% increase in its quarterly dividend rate from the previous payout.

We are, however, a little apprehensive of escalating fuel, purchased power and gas expenses. In the first quarter though these expenses had shot up 60% year over year, a frigid winter driving energy demand had ensured that the company's net profits remained unaffected.  We are not too confident of how far DTE will be able to mitigate elevated costs in the second quarter considering the mild temperatures this season.  

Earnings Whispers?

Our proven model does not conclusively show that DTE Energy will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +1.33%. This is because the Most Accurate estimate stands at 76 cents while the Zacks Consensus Estimate is pegged at 75 cents.

Zacks Rank: DTE Energy's Zacks Rank #4 (Sell) lowers the predictive power of the ESP. We caution against stocks with Zacks Rank #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.

Ameren Corp. ( AEE ) has an earnings ESP of +14.04% and carries a Zacks Rank #2 (Buy).

American Electric Power Company, Inc. ( AEP ) has an earnings ESP of +2.67% and carries a Zacks Rank #2 (Buy).

TECO Energy, Inc. ( TE ) has an earnings ESP of +3.70% and carries a Zacks Rank #2 (Buy).

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DTE ENERGY CO (DTE): Free Stock Analysis Report

AMEREN CORP (AEE): Free Stock Analysis Report

TECO ENERGY (TE): Free Stock Analysis Report

AMER ELEC PWR (AEP): Free Stock Analysis Report

NEXTERA ENERGY (NEE): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: DTE , AEE , TE , AEP , NEE



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