New York-based Consolidated Edison, Inc.ED is set to release first-quarter 2016 results after the closing bell on May 5. In the preceding quarter, Consolidated Edison delivered a positive earnings surprise of 10.91%. Let's see how things are shaping up prior to this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Consolidated Edison is likely to beat on earnings this season because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to beat estimates, and Consolidated Edison has the right mix.
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +0.82%. This is because the Most Accurate estimate is at $1.23, while the Zacks Consensus Estimate is pegged slightly lower at $1.22. This is a meaningful indicator of a likely positive earnings surprise.
Zacks Rank: Consolidated Edison currently carries a Zacks Rank #3.
The combination of Consolidated Edison's Zacks Rank #3 and positive ESP make us reasonably confident of an earnings beat this season.
Conversely, Sell-rated stocks (#4 or #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.
What is Driving the Better-than-Expected Earnings?
Consolidated Edison follows a systematic capital investment plan for infrastructure development and has a robust capital expenditure plan of around $11.5 billion for the 2016-2018 time frame. Roughly 81.3% of the planned investment has been allocated for its regulated utility operations, while the rest goes to its competitive business. It expects 2016 earnings in the range of $3.85 to $4.05 per share.
Meanwhile, Consolidated Edison has gradually been converting some of its operations to gas, which is safer for the environment. The company is, in fact, steadily investing in its renewable generation assets. It plans to continue with its renewable investments in 2016 as well - the company will invest $3,168 million in energy delivery systems and $985 million in renewable electric production projects. Going forward, the company has set aside $1.7 billion for its renewable and energy infrastructure projects for the 2016-2018 period.
In Jan 2016, the company announced that it has created a new division - Con Edison Transmission, Inc. (CET) - to focus better on electric and gas transmission projects. These initiatives would help the company to expand and diversify energy resources while encouraging competitive pricing for consumers.
Consolidated Edison has a history of paying incremental dividends. The company hiked its quarterly dividend by 3.1% in January. The company presently shells out an annual dividend of 67 cents per share. This marked the 42nd annual dividend rate hike by this utility. The increased rate raises the company's annual dividend to $2.68 per share.
On the flip side, Consolidated Edison's service territories witnessed warmer-than-normal temperatures in winter. This led to lower household expenditure on heating, which may hurt the company's revenues in the first quarter.
Other Stocks to Consider
Here are a couple of other utility companies you may want to consider, as our model shows that they also have the right combination of elements to post an earnings beat this quarter:
Pattern Energy Group Inc. PEGI has an Earnings ESP of +466.67% and a Zacks Rank #3. The company is expected to release first-quarter 2016 results on May 5.
Hawaiian Electric Industries Inc. HE has an Earnings ESP of +2.70% and a Zacks Rank #3. The company is expected to release first-quarter 2016 earnings on May 4.
Peer Release
DTE Energy Company DTE reported first-quarter 2016 operating earnings per share of $1.52, in line with the Zacks Consensus Estimate. Reported earnings, however, dropped 7.9% from the year-ago figure of $1.65.
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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.
