The Q2 earnings season is past the halfway mark, with total earnings of the 265 S&P 500 members that have already reported being up 23.6% from the same period last year on 10.1% higher revenues. Per out latest Earnings Preview, overall second-quarter earnings for all the S&P 500 members are expected to be up 23.6% on 8.8% revenue growth.
Let's concentrate on the domestic-focused matured Utility sector and find out how it is poised to perform this season. This sector, along with 14 of the 16 Zacks sectors, is likely to come up with improved year-over-year earnings. Currently, the Autos and the Conglomerates sector is likely to register a decline in earnings.
The Utility sector's second-quarter earnings are expected to increase 8.2% year over year on 0.3% growth in revenues, courtesy of expected stable performance by most of the utilities. Utility stocks are expected to gain from the new rates in their service territories, customer growth and effective management of expenses, all of which should have a positive impact on second-quarter earnings.
Unemployment rate in the United States during the second quarter was in the range of 3.8-4.0%. This historic low level of unemployment boosted demand for new housing units and in turn the requirement for utility services. Per a U.S. Energy Information Administration ("EIA") report, electricity demand from residential, commercial and industrial sectors during the first half of 2018 improved from the year-ago period.
However, these utilities do have their share of challenges such as a rising debt level, stringent regulations and the hurricane season, all of which can wreak havoc on infrastructure. Rising interest rates (the Federal Reserve hiked interest rates in June, marking the seventh increase since December 2015) make bonds a strong investment option, as interest rate hike increases the utilities' cost of capital, impacting margins and comprising on their ability to pay or hike dividend rates. Despite the rate hikes, we find that some of the utilities are fundamentally strong enough to come up with positive earnings surprise this season.
Let's take a look at some Utility stocks scheduled to report second-quarter 2018 earnings on Jul 31 and find out how things are shaping up prior to the announcement.
FirstEnergy Corporation FE delivered a positive earnings surprise of 3.56% in the last reported quarter. Presently, FirstEnergy is a fully-regulated company and expected to benefit from its modernization drive ‘Energizing the Future’. The plan is expected to create a stronger transmission system and improve service reliability. (Read more: Is a Beat in Store for FirstEnergy This Earnings Season?)
FirstEnergy has an Earnings ESP of +0.50% and a Zacks Rank #3 (Hold), which is a favorable combination indicating a likely positive earnings surprise this season. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 to be able to beat estimates. You can see the complete list of today's Zacks #1 Rank stocks here.
WEC Energy Group WEC delivered a positive earnings surprise of 6.03% in the last reported quarter. The company is expected to benefit from its rising electric and natural gas customer base.
WEC Energy has an Earnings ESP of +3.54% and a Zacks Rank #3, which is a favorable combination indicating a likely positive earnings surprise this season.
You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.
Fortis Inc.’s FTS earnings in the first quarter were on par with the Zacks Consensus Estimate. The company is expected to benefit from planned capital expenditure aimed to strengthen its infrastructure.
Fortis has an Earnings ESP of +0.61% and a Zacks Rank #4 (Sell), indicating a likely negative surprise this season.
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