We expect the electric utility
Pepco Holdings, Inc.
) to beat expectations when it reports third-quarter 2014 results
on Nov 5. The company's earnings surprise history looks unblemished
over the trailing four quarters, with an average beat of nearly
Why a Likely Positive Surprise?
Our proven model indicates that Pepco Holdings will 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)
to be able to beat consensus estimates. That is the case here as
you will see below.
Positive Zacks ESP
: Earnings ESP, which represents the difference between the Most
Accurate estimate and the Zacks Consensus Estimate, is +4.76%. This
is because the Most Accurate Estimate is at 44 cents per share
while the Zacks Consensus Estimate is at 42 cents per share.
: The combination of Pepco Holdings' Zacks Rank #2 and +4.76% ESP
makes us confident of an earnings beat this quarter.
The Sell-rated stocks (#4 and 5) should never be considered going
into an earnings announcement.
What is Driving the Better-than-Expected Earnings?
Similar to the second quarter, Pepco Holdings is expected to
benefit from an improvement in electricity distribution and network
transmission revenues, a reflection of the consistent investments
made by the company to strengthen its infrastructure.
During the third quarter, Maryland Public Service Commission
approved an annual rate hike effective immediately. In addition,
the recovery of smart meter costs in electric distribution base
rates has begun in the District of Columbia and Delaware. The
favorable regulatory decision is expected to benefit the company's
earnings in spite of the cooler summer temperatures this year.
In the to-be-reported quarter, the shareholders of Pepco Holdings
gave their approval on the Exelon Corporation (EXC) merger deal.
This deal is expected to be completed in the second half of 2015
and benefit both Exelon and Pepco customers.
Other Stocks to Consider
Pepco Holdings is not the only firm looking up this earnings
season. We also see likely earnings beats coming from the following
NRG Yield, Inc. (
) has an earnings ESP of +75.44% and a Zacks Rank #1 (Strong Buy).
Consolidated Edison, Inc. (
) has an earnings ESP of +2.80% and a Zacks Rank #2 (Buy).
Dynegy Inc. (
) has an earnings ESP of +260.00% and a Zacks Rank #2 (Buy).
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