Utilities sector kicked off the Q3 reporting cycle on a mixed note, with NextEra Energy (NEE) reporting better-than-expected earnings figure but revenues missing the consensus mark. Deviating from its usual trend, this time the domestic-focused matured Utility sector is one among 14 of the total 16 Zacks sectors projected to report year-over-year earnings decline.
Notably, total Q3 earnings of Utility stocks are expected to decline 3.7% year over year on 2% lower revenues. For more details on quarterly releases, you can go through our latest Earnings Preview.
Factors Likely to Influence Q3 Results
Utility companies are expected to have registered a decrease in demand during the third quarter, primarily due to reduced commercial and industrial activities, thanks to the prolonged impacts of the pandemic. However, increased demand from the residential group due to stay-at-home directives might have offset the reduced demand to some extent. For instance, per data from the U.S. Energy Information Administration (EIA), revenues from the sale of electricity to the nation’s customers rose 1.9% year over year in July, while it declined 1.9% in August. Such data are indicative of the reduced revenue generation capacity posed by utility providers during the third quarter.
Moreover, for major parts of the third quarter, a handful of tropical storms including as deadly as Hurricane Laura ravaged the coastal parts of the United States, followed by flash floods. No doubt such storm activities damaged utility infrastructure, thereby pushing up quarterly costs for utilities operating in the storm-affected regions. This in turn must have weighed on the sector’s bottom line performance that should get reflected in third-quarter results.
Nevertheless, the near-zero level interest rate prevalent in the country has created an opportunity for utilities to make abundant investment in their infrastructural development. Such investment has allowed them to restore services quickly even after getting impacted by an ‘extremely active Atlantic hurricane season in 2020’, per Colorado State University. This, along with rampant cost-cutting initiatives adopted by major utilities, in the wake of the pandemic, might have prevented the sector from incurring huge losses in the third quarter.
Utilities Earnings in Focus
Let's take a look at some Utility stocks that are scheduled to report earnings on Oct 29.
The Southern Company’s SO four-quarter average earnings surprise is 11.98%. With approximately a third of the company’s total retail sales coming from industrial customers, a sluggish consumption pattern in here can be expected to have dragged down its Q3 revenues. Southern Company’s aggressive cost-control initiatives are likely to have lowered its quarterly operations and maintenance costs (read more: Is a Beat Likely for Southern Company in Q3 Earnings?).
Our proven model predicts an earnings beat for Southern Company this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The company has an Earnings ESP of +0.54% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Southern Company The Price and EPS Surprise
Xcel Energy’s XEL four-quarter average earnings surprise is 3.54%. With the lifting of shutdown orders, electricity consumption in the company’s commercial and industrial (C&I) group is expected to have improved, though possibly falling short of reaching its pre-pandemic levels. Since the utility’s C&I group accounts for 62% of the top line, the gradual uptick in C&I demand is expected to boost its third-quarter results.
The company has an Earnings ESP of 0.00% and carries a Zacks Rank #3 (read more: What's in the Cards for Xcel Energy in Q3 Earnings?).
Xcel Energy Inc. Price and EPS Surprise
PG&E Corp’s PCG four-quarter average earnings surprise is 10.68%. During most part of the third quarter, major parts of the company’s service territories experienced warmer-than-normal temperatures. This in turn must have boosted its Q3 top line, while escalated wild-fire related costs might have dragged down its earnings.
The company has an Earnings ESP of +0.69% and carries a Zacks Rank #4 (Sell) (read more: PG&E to Report Q3 Earnings: What's in the Offing?).
Pacific Gas Electric Co. Price and EPS Surprise
CMS Energy’s CMS four-quarter average earnings surprise is 9.22%. Warmer-than-normal temperature accompanied with elevated residential sales as well as recovering commercial and industrial sales are expected to have boosted the company’s Q3 revenues. However, severe storm activities across the third quarter must have pushed up storm restoration cost for CMS Energy, which along with COVID-19 related expenses might have impacted its quarterly bottom line.
The company has an Earnings ESP of +0.15% and carries a Zacks Rank #3 (read more: CMS Energy to Report Q3 Earnings: What's in the Cards?).
CMS Energy Corporation Price and EPS Surprise
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Southern Company The (SO): Free Stock Analysis Report
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Xcel Energy Inc. (XEL): Free Stock Analysis Report
Pacific Gas Electric Co. (PCG): Free Stock Analysis Report
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