The Q3 earnings season is picking up pace with 291 S&P 500 members having already released results. Reported earnings were up 2.2% year over year on 1.3% higher revenues.
For the remaining 209 index members, projections are of a 2% improvement in earnings on 1.4% higher revenues despite the expectations of a 65.4% plunge in earnings on 12.2% lower revenues for the Oil & Energy sector. Notably, this could be the first quarter to record positive earnings growth after five quarters of back-to-back declines.
Four out of the 16 sectors in the Zacks coverage universe are expected to witness an earnings decline this season. However, utility is among the remaining 12 sectors that are expected to record positive growth this season. Read more details in our weekly Earnings Preview report.
Let us now focus on the utility sector, which is characterized by its defensive nature and domestic orientation.
Stringent emission control laws have spurred the demand for clean burning sources of energy like natural gas and renewables, lowering the usage of coal in electricity production. Per recent projections by the U.S. Energy Information Administration (EIA), the share of natural gas in the electricity generation mix will increase to nearly 35% in 2016, reflecting growing preference for the fuel.
The utility sector is also known for its capital-intensive nature. This is because these companies need huge capital for setting up generation facilities, and transmission and distribution infrastructure. They also require considerable funds for upgrading the existing systems to meet emission control standards.
Because of this, utilities have been benefiting from the rock-bottom interest rate environment. However, talks hinting at a rate hike before the end of the year could hamper the growth momentum of the sector. Nevertheless, we expect warmer-than-normal weather in the U.S. during the third quarter to boost sales to a large extent.
In the third quarter of 2016, sector earnings are expected to be up 9.9% on 5.2% higher revenues.
Let's take a look at a few utilities that are scheduled to report quarterly numbers on Nov 2.
Black Hills CorporationBKH reported a negative earnings surprise of 30.36% last 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 .
Black Hills' Earnings ESP , which represents the difference between the Most Accurate estimate of 36 cents and the Zacks Consensus Estimate of 42 cents, is -14.29%. According to our proven model, stocks with the combination of a positive ESP and a Zacks Rank #1, #2 (Buy) or #3 have increased chances of beating estimates.
BLACK HILLS COR Price and EPS Surprise
El Paso Electric Co.EE reported a positive earnings surprise of 22.22% last quarter. The company currently carries a Zacks Rank #3.
The company has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.90.
EL PASO ELEC CO Price and EPS Surprise
Otter Tail CorporationOTTR , a Zacks Rank #1 stock, reported a positive earnings surprise of 7.89% last quarter.
The company has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 45 cents.
OTTER TAIL CORP Price and EPS Surprise
Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
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