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Eversource Energy(ES) Q2 Earnings: Will the Stock Beat?

Zacks Equity Research
Updated

We expect diversified company Eversource Energy ES to beat expectations when it reports second-quarter 2016 results on Jul 29, before the market opens. Last quarter, the company had reported a negative earnings surprise of 1.28%, bringing the trailing four-quarter average to 2.22%.

Let’s see how things are shaping up at the company prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Eversource Energy is likely to beat earnings because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to be able to beat estimates and Eversource Energy has the right mix.

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Zacks ESP: The Earnings ESP which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +3.08%. This is because the Most Accurate Estimate stands at 67 cents while the Zacks Consensus Estimate is pegged at 65 cents. This is a meaningful and leading indicator of a likely positive surprise.

Zacks Rank: The company currently carries a Zacks Rank #3. The combination of Eversource Energy’s Zacks Rank #3 and positive ESP makes us reasonably confident of a positive surprise this season.

Conversely, we caution against Sell-rated stocks (#4 or#5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

EVERSOURCE EGY Price and EPS Surprise

EVERSOURCE EGY Price and EPS Surprise | EVERSOURCE EGY Quote

Factors to Consider

Eversource Energy pursues organic growth to expand its operations. The company’s systematic investment in growth projects should continue to boost its performance in the to-be reported quarter and beyond.

Eversource remains on track with distribution and utility transmission infrastructure upgrades, which will not only enable the company to provide reliable services to its customers but also aid in achieving its earnings growth target of 5–7% in 2016 and beyond. The company projects transmission capital expenditure of $911 million and distribution & generation capital expenditure of $1.2 billion in 2016.

As a result of Eversource Energy’s continued investment in the reliability of the New England power grid, the company witnessed robust earnings growth in the first quarter of 2016. Rate case growth added 2 cents per share to first-quarter earnings and will continue benefit the bottom line in the to-be reported quarter as well.

Eversource Energy has also been able to manage its expenditure in an efficient manner. The company achieved an overall average O&M expense reduction of 5% in the last three years, exceeding its cost reduction goal of 2% to 3% in a year. If the company can reduce its operating costs like it did in the first quarter, margins are bound to get a boost in the to-be reported quarter as well.

Other Stocks to Consider

Eversource Energy is not the only company looking up this earnings season. We see likely earnings beats coming from these companies as well:

Pattern Energy Group, Inc. PEGI has an Earnings ESP of +100.00% and a Zacks Rank #2. The company is expected to report second-quarter 2016 results on Aug 8.

Avista Corp. AVA has an Earnings ESP of +2.33% and a Zacks Rank #2. The company is expected to report second-quarter 2016 results on Aug 3, before the market opens.

DTE Energy Company DTE has an Earnings ESP of +2.20% and a Zacks Rank #2. The company is expected to report second-quarter 2016 results on Jul 26, before the market opens.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
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Zacks Investment Research