After last week's wave of utility earnings releases, this week promises more reports from this stable and much sought after sector during phases of economic ennui. With earnings releases coming in thick and fast, the end of the week will have nearly 88% of the index members having reported earnings results.
The utilities stand to gain from their domestic focus and a stronger dollar hardly has any impact on their performance. However, inconsistent weather patterns can influence quarterly results to a large extent. The majority of utilities operating in the U.S. were affected by an unseasonably warm winter in the first quarter of 2016.
Moreover, beats and misses are difficult to predict given that companies often come up with surprises. But our proprietary model shows that a stock which has a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has high chances of coming up with a positive surprise.
From the earnings trends so far in the first quarter, it is quite evident that the utility sector, which occupies 3.1% of the entire market cap, is set to outpace the performance of the S&P500 members. Utility earnings are estimated to improve 6.0% in the first quarter, whereas the S&P 500 average earnings are expected to be down 8.0%.
Among the 16 sectors in our coverage universe, the energy sector is expected to be the worst performer. Earnings from the energy sector are expected to be down 114.5% year over year on a 31.8% drop in revenues. Overall, earnings are expected to be negative for another 8 sectors excluding energy. For further details on earnings release kindly consult our Earnings Trend report.
As mentioned earlier, the mature utility sector is expected to record earnings growth this season. The improvement in the jobs market might also pave the way for higher demand for utility services. An increase in the customer count gives the utilities an added impetus to invest heavily in existing infrastructure.
Encouraged by the bullish expectations from the sector and in the light of positive fundamentals, particularly the low-rate scenario, let's turn our focus to some utilities which are scheduled to report earnings on May 5.
Consolidated Edison, Inc. ED , a Zacks Rank#3 (Hold) stock, delivered a positive earnings surprise of 10.91% in the preceding quarter. The utility follows a systematic capital investment plan for infrastructure development with around $11.5 billion earmarked for the 2016-2018 time frame. The company has gradually been converting some of its operations to gas, which is safer for the environment (read more: Consolidated Edison Q1 Earnings: Stock Likely to Beat ).
The above chart indicates that Consolidated Edison delivered positive earnings surprises in three out of the last four quarters. The average positive earnings surprise was 8.38%.
NRG Energy Inc. NRG , a Zacks Rank#3 stock, reported a negative earnings surprise of 47.37% last quarter. Amid increasing regulatory pressure, NRG Energy has resorted to cost reduction programs and lowered its annual dividend rate to maintain financial flexibility this year (read more: Will NRG Energy Disappoint Estimates in Q1 Earnings? ).
The above chart indicates that NRG Energy delivered a positive earnings surprise in only one out of the last four quarters. This led to an average negative earnings surprise of 185.24%.
TECO Energy, Inc. TE , a Zacks Rank #3 stock, reported an earnings surprise of 0.00% last quarter. TECO Energy has been gaining traction on the back of rising customer count. However, warmer-than-expected temperatures last winter could hurt demand for utility services and in turn affect the performance of the company (read more: TECO Energy Q1 Earnings: Can the Stock Surprise? ).
The above chart indicates that TECO Energy's earnings were with in line with expectations in the last four quarters.
While curtains are about to fall on the first quarter 2016 earnings season soon, let's stay focused on the utilities releasing their numbers tomorrow.
Also, keep an eye on our full earnings articles to see how these stocks finally fared.