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Key Predictions for NEE, AEP, XEL, WEC, FE's Q3 Earnings

The third-quarter earnings season is fast approaching its peak. As of Oct 20, 87 S&P 500 members came up with their quarterly earnings. By end of Oct 27, nearly 267 members of the index are expected to release their numbers.

Total earnings for these 87 S&P 500 members are up 9.4% year over year on 7.3% higher revenues, with 71.3% beating earnings per share estimates and 70.1% surpassing revenue estimates.

Amid this positive performance so far let us focus on the Zacks Utility sector, which is characterized by its defensive nature and domestic orientation. Earnings are expected to drop 4% this season. Notably, at present, nine out of the 16 sectors in the Zacks coverage universe are expected to witness an earnings decline this season. Read more details in our weekly Earnings Preview .

Utilities have been benefiting from the rock-bottom interest rate environment. However, the Federal Reserve raised the rates twice in this year - in March and June. This will definitely hurt the sector's stocks. In addition, the hurricanes also adversely impacted the utilities operating in Texas and Florida.

With the rising interest rates, the stable, regular dividend payer utilities will face strong competition from bonds as these provide higher returns, which will make them a more attractive option for investors.

Let us take a sneak peek at few utility stocks that are scheduled to release third-quarter earnings on Oct 26.

NextEra EnergyNEE reported a positive earnings surprise of 5.7% in the previous quarter. The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

For the third quarter, the Zacks Consensus Estimate for NextEra Energy's revenues is pegged at $4,893 million, indicating 4.01% year over year and 12.4% sequential increase. We expect the increase in total revenues to be driven by higher contribution from its FPL segment.

However, Hurricane Irma is likely to adversely impact the company's earnings. NextEra Energy's earnings are projected to be $1.75 per share, reflecting a sequential drop by a penny.

NextEra Energy's Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.75. According to our proven model, stocks with the combination of a positive Earnings ESP and a Zacks Rank #1, 2 (Buy) or 3 have higher chances of beating estimates. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

NextEra Energy, Inc. Price and EPS Surprise

NextEra Energy, Inc. Price and EPS Surprise | NextEra Energy, Inc. Quote

The company is unlikely to beat earnings because it does not have the right combination of the two key ingredients (read more: Will FPL's Performance Drive Q3 Earnings for NextEra? ).

Meanwhile, 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.

American Electric Power Company Inc . AEP reported a negative earnings surprise of 8.54% in the previous quarter. The company currently carries a Zacks Rank #3.

American Electric Power is expected to benefit from the improving economic conditions in its service territories and its efficient cost-management initiatives.

Ohio and Texas operations contributes a major share of company's utility revenues. Power generation from these states is deregulated, consequently leading to the current lower price environment. This, in turn, is expected to hurt earnings of American Electric Power.

Hurricane Harvey that hit the coasts of Texas last month, hampered the smooth flow of electricity through the transmission lines leading to widespread outages in the state. American Electric Power's subsidiary, AEP Texas, is engaged in the transmission and distribution of electric power to approximately 1 million retail customers. Therefore, we expect the company's third-quarter bottom line to be affected due to outages.

American Electric Power Company, Inc. Price and EPS Surprise

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

American Electric Power's Earnings ESP is -2.11%. This is because the Most Accurate estimate is pegged at $1.20, lower than the Zacks Consensus Estimate of $1.22.

Hence, the company is unlikely to beat earnings as it does not have the right combination of the two key ingredients (read more: What's in Store for American Electric in Q3 Earnings? ).

Xcel Energy Inc.XEL reported a positive earnings surprise of 4.65% in the previous quarter. The company currently carries a Zacks Rank #3.

For the third quarter, the Zacks Consensus Estimate for Xcel Energy's revenues is pegged at $3,284 million, indicating 10.8% year over year and 23.8% sequential increase. We expect the increase in total revenues to be driven by higher contribution from its Electric segment. Economic growth in its service territories, especially in Minnesota and systematic investment in regulated operation is expected to boost the bottom line. The company's focus to produce more electricity from renewable sources will also yield positive results.

Xcel Energy Inc. Price and EPS Surprise

Xcel Energy Inc. Price and EPS Surprise | Xcel Energy Inc. Quote

Xcel Energy's Earnings ESP is -0.72%. This is because the Most Accurate estimate is pegged at 92 cents, lower than the Zacks Consensus Estimate of 93 cents.

Hence, the company is unlikely to beat earnings as it does not have the right combination of the two key ingredients (read more: Xcel Energy Q3 Earnings: What's in Store for the Stock ? )

WEC Energy GroupWEC reported a positive earnings surprise of 6.78% in the previous quarter. The company currently carries a Zacks Rank #3.

Nearly 99% of its earnings come from regulated operations, which provide excellent visibility on its future performance. Economic growth in its service territories and systematic investment in regulated operation is expected to boost the bottom line. WEC Energy is currently providing services to a higher number of customers than the last-year level, which is expected to have a positive impact on demand and earnings.

However, assumption of normal weather in to-be-reported quarter compared with 43% warmer- than-normal temperature in the year-ago quarter could impact earnings.

WEC Energy Group, Inc. Price and EPS Surprise

WEC Energy Group, Inc. Price and EPS Surprise | WEC Energy Group, Inc. Quote

WEC Energy's Earnings ESP is -0.25%. This is because the Most Accurate estimate is pegged at 67 cents, lower than the Zacks Consensus Estimate of 68 cents.

Hence, the company is unlikely to beat earnings as it does not have the right combination of the two key ingredients (read more: What's in Store for WEC Energy This Earnings Season? )

FirstEnergy CorporationFE earnings broke even in the previous quarter. The company currently carries a Zacks Rank #3.

FirstEnergy is currently in a transitionary phase and it gradually moving out from its Competitive Generation operation and converting itself to a regulated company. Primarily due to this, its competitive business customers at the end of the second quarter were 850,000, much lower than 1.5 million in the year-ago quarter. The competitive customers are expected to drop further in third quarter, adversely impacting demand.

For the third quarter, the Zacks Consensus Estimate for FirstEnergy's revenues is pegged at $3,571 million, much lower than $3,828 million in the year-ago period.

FirstEnergy Corporation Price and EPS Surprise

FirstEnergy Corporation Price and EPS Surprise | FirstEnergy Corporation Quote

FirstEnergy's Earnings ESP is -0.82%. Hence, the company is unlikely to beat earnings as it does not have the right combination of the two key ingredients (read more: Will Lower Demand Affect FirstEnergy's Q3 Earnings?)

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

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Xcel Energy Inc. (XEL): Free Stock Analysis Report

NextEra Energy, Inc. (NEE): Free Stock Analysis Report

FirstEnergy Corporation (FE): Free Stock Analysis Report

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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.

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