So far, we have witnessed Q4 results, constituting almost 50% of the market cap among the S&P 500 members from the Zacks Utilities sector. Another cohort of major utility stocks, including American Electric Power Company AEP, PG&E Corp. PCG, DTE Energy DTE, Edison International EIX and Alliant Energy LNT, is set to announce their earnings on Feb 23.
Factors to Consider
Domestic-focused utility companies are focused on cost management and implementation of energy-efficiency programs. Favorable rate revision and customer additions have been creating fresh demand as well as assisting utilities. Investment in strengthening the infrastructure has been allowing utilities to provide services even during extreme conditions, leading to stable earnings. Domestic-focused operations also insulate utilities from the adverse impact of currency fluctuation. These factors are projected to contribute to this sector’s Q4 results.
A clear transition is evident in the Utilities space, with the players gradually moving toward clean sources of fuel to produce electricity and lower emission. The stringent regulations pertaining to emissions and the high cost of conventional fuel and government incentives on the usage of clean fuel have been leading utilities to focus more on clean energy sources. Many utilities have already pledged to provide 100% electricity from clean sources in the next few decades.
The passage of Inflation Reduction Act (IRA) will support and accelerate utilities’ transition toward clean energy sources. IRA has removed the uncertainties relating to federal incentives provided for renewable sources usage. The Act entails an opportunity for a wide range of low-cost clean energy solutions in a much more predictable way for a long time and will create earnings visibility.
Utilities need massive funds to upgrade, maintain and expand their infrastructure and operations and are capital-intensive. The performance of the utilities is likely to have been adversely impacted by the increase in interest rates from near-zero levels. The increase in borrowing costs in 2022 is likely to have pushed up capital servicing expenses and adversely impacted Q4 earnings.
Total Q4 earnings of Utility stocks are expected to improve 3.1% year over year, while revenues are likely to have risen 3.1%.
For more details on quarterly releases, you can go through our latest Earnings Preview.
Utilities’ Earnings in Focus
Let’s take a look at the following utility companies that are scheduled to report fourth-quarter 2022 earnings on Feb 23 and find out how things have shaped up prior to the announcement.
American Electric Power delivered a four-quarter average earnings surprise of 2.91%. During most of the fourth quarter, AEP’s service territories observed fluctuating weather patterns, which are likely to have caused a mixed impact on the company’s overall revenue performance in the to-be-reported quarter.
American Electric’s service territories witnessed tornadoes and flash floods in the fourth quarter, which may have caused infrastructural damage, thus increasing the company’s operating expenses for storm restoration and repair. This, in turn, is likely to have weighed on the company’s bottom line in the to-be-reported quarter (read more: What’s in Store for American Electric in Q4 Earnings?)
According to the Zacks model, 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 see the complete list of today’s Zacks #1 Rank stocks here.
American Electric Power has an Earnings ESP of -0.58% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
PG&E Corp. delivered a four-quarter average earnings surprise of 4.89%. Favorable rate cases are expected to have boosted PCG’s fourth-quarter revenues.
During the fourth quarter of 2022, the above-average temperature at PG&E’s service territories resulted in fewer wildfire activities than the year-ago period. This might have had less impact on the company’s fourth-quarter bottom-line performance year over year.
PG&E Corp. has an Earnings ESP of -4.22% and a Zacks Rank #3 (read more: PG&E Set to Report Q4 Earnings: What’s in the Cards?).
DTE Energy delivered a four-quarter average earnings surprise of 2.85%. Its service territories witnessed variable weather pattern that is likely to have had a moderate impact on the company’s Q4 top-line performance.
Accelerated deferred tax amortization as well as DTE’s efforts to reduce interest expenses might have benefited the company’s overall bottom-line performance in the fourth quarter.
DTE Energy has an Earnings ESP of +1.24% and a Zacks Rank #3 (read more: What’s in the Cards for DTE Energy in Q4 Earnings?)
Edison International delivered a four-quarter average earnings surprise of 14.88%. Favorable weather pattern and positive impact of the general rate case may have boosted the revenues of the company in the soon-to-be-reported quarter.
Considering the current interest rate environment, the company is likely to have incurred higher interest expenses in the fourth quarter, which might have hurt its bottom line.
Edison International has an Earnings ESP of +0.25% and a Zacks Rank #3 (read more: What Awaits Edison International This Earnings Season?).
Alliant Energy delivered a four-quarter average earnings surprise of 1.62%. Its fourth-quarter earnings are likely to have gained from investment earnings in clean electricity generation, battery storage projects and higher electric and gas sales.
Higher depreciation expenses are likely to have offset some positives in the yet-to-be reported quarter.
Alliant Energy has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell) (read more: Alliant Energy to Report Q4 Earnings: What to Expect).
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