Markets
AEP

American Electric Power (AEP) Q4 Earnings: Beat in Store?

A pen and a calculator.
Credit: Shutterstock photo

American Electric Power Co., Inc.AEP is set to release fourth-quarter 2016 results on Jan 26, before the market opens.

In the preceding quarter, this utility company posted a positive earnings surprise of 7.44%. Moreover, American Electric outperformed the Zacks Consensus Estimate in two out of the trailing four quarters, the average positive surprise being 1.31%.

Let's see how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that American Electric is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: American Electric has an Earnings ESP of +5.66%. That is because the Most Accurate estimate is 56 cents, while the Zacks Consensus Estimate is pegged lower at 53 cents. This is a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: American Electric has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.

Also, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

The combination of American Electric's Zacks Rank #3 and +5.66% ESP makes us reasonably certain of an earnings beat.

American Electric Power Company, Inc. Price and EPS Surprise

American Electric Power Company, Inc. Price and EPS Surprise | American Electric Power Company, Inc. Quote

What's Driving the Better-Than-Expected Earnings?

American Electric has a stable base of approximately 5.4 million customers spread over 11 states, which offers a steady revenue stream and makes up for lower sales in any particular service area.

The company's consistent focus on utility operations, transmission growth, expansion of customer sales channels, process optimization and disciplined capital deployment continue to drive results for its shareholders and customers.

The company has been returning wealth to its shareholders via dividends since Jul 1910. In Oct 2016, the company raised its dividend by 5.4% on a quarterly basis to 59 cents per share. The dividend was raised from the prior payment of 56 cents. These investor-friendly moves will help the company to maintain its growth trajectory in the near as well as long term.

Moreover, management had earlier said that it believes that success in the company's regulated business during the second half of 2016 will outweigh challenges presented by its generation and marketing segment. This in turn is expected to enable the company to comfortably achieve its earnings target announced during the third-quarter earnings call in the range of $3.75-$3.85 per share for 2016, which was raised from the earlier guidance band of $3.60- $3.80 per share.

For the fourth quarter, the Zacks Consensus Estimate for earnings is pegged at 53 cents a share, reflecting an increase of 11.11% year over year, while the consensus for revenues is $2.83 billion, implying a 21.37% year-over-year decline.

Price Movement

American Electric has largely outperformed the Zacks categorized Utility-Electric Power industry. The company's current rate of return is 8.6%, compared to the industry average of 7.8% over the last twelve months.

With focus on augmenting the bottom line, American Electric has directed capital expenditure toward regulated businesses. In doing so, the company increased its capital investment budget in core operations for the next three years. This has encouraged management to raise the long-term EPS growth rate in the range of 5-7% from the earlier projection in the band of 4-6%.

Stocks to Consider

Here are a few stocks in the Utility space worth considering on the basis of our model, which shows that they have the right combination to pull off a beat:

Entergy Corporation ETR is scheduled to release fourth-quarter results on Feb 15. The company has an earnings ESP of +18.75% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here .

Exelon Corporation EXC is expected to report earnings on Feb 8. It has an Earnings ESP of +4.65% and a Zacks Rank #2.

Pinnacle West Capital Corporation PNW is slated to report earnings on Feb 24. It has an Earnings ESP of +4.08% and a Zacks Rank #2.

Zacks' Top 10 Stocks for 2017

In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?

Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

American Electric Power Company, Inc. (AEP): Free Stock Analysis Report

Pinnacle West Capital Corporation (PNW): Free Stock Analysis Report

Exelon Corporation (EXC): Free Stock Analysis Report

Entergy Corporation (ETR): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

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


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

In This Story

AEP PNW EXC ETR

Other Topics

Earnings Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More