Per the latest Earnings Preview, the Zacks Utilities sector’s fourth-quarter 2022 earnings are expected to improve 3.1% on the back of revenue improvement of 3.1%. The capital-intensive utility stocks were impacted by the ongoing increase in interest rates and rising operating costs, while cost management, customer growth, systematic investment to strengthen infrastructure to increase the resilience of the system and new rates implemented in their service territories boosted revenues.
With the assistance of the Zacks Stock Screener, we have identified four utilities, namely NiSource NI, Sempra Energy SRE, Edison International EIX and DTE Energy DTE, which are poised to beat the Zacks Consensus Estimate in fourth-quarter earnings. These stocks have the ideal combination of two ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) — to surpass expectations. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
A few large utilities, like NextEra Energy, Dominion Energy and Duke Energy, among others, have already reported an earnings surprise in their respective releases.
Factors That Likely Impacted Q4 Results
Domestic-focused companies operating in the sector are focused on cost management and implementation of energy-efficiency programs. New rates and customer additions are creating fresh demand as well as assisting the utilities. Investment in strengthening the infrastructure is 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. Mergers and acquisitions in the utility space allow utilities to expand operation, make essential investment to upgrade old infrastructure and extend quality services to new customers, thus boosting revenues.
Capital-intensive utilities need massive funds to upgrade, maintain and expand their infrastructure and operations, and are capital-intensive in nature. The performance of the utilities is likely to have been adversely impacted by the increase in interest rates from near-zero levels. The ongoing increase in borrowing costs and the possibility of more interest rate hikes this year may have further pushed up capital servicing expenses and adversely impacted earnings.
Utilities have been focused on improving productivity and their cost structure through investments in digital technologies, integrating key systems and analyzing data to make proper decisions to improve overall operations. The utilities have been educating customers relating to the proper usage of electricity to reduce utility bills and things to do during emergencies to reduce damage.
The passage of the Inflation Reduction Act (IRA) is likely to have supported and accelerated 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 predictable way, for a long time and will create earnings visibility.
Expected Q4 Outperformers
NiSource is an energy holding company and together with its subsidiaries provides natural gas, electricity and other products and services in the United States. NiSource remains on track to make capital investments of nearly $15 billion within the 2023-2027 period. The company’s earnings are likely to have benefited from the new electric and gas rates that came into effect in 2022.
The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 49 cents, currently showing an increase of 25.64% from the year-ago reported figure. NI has an Earnings ESP of +1.03% and a Zacks Rank #2.
NiSource, Inc Price and EPS Surprise
NiSource, Inc price-eps-surprise | NiSource, Inc Quote
Sempra Energy is a southern California-based energy services holding company involved in the sale, distribution, storage and transportation of electricity and natural gas. The company is well-poised, given stable earnings from its utility subsidiaries. For the 2022-2026 period, Sempra Energy expects to invest $36 billion, which comprises $21.2 billion in Sempra California, $12.1 billion in Sempra Texas and $2.3 billion in Sempra Infra.
The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $2.06, currently showing a decline of 4.63% from the year-ago reported figure. SRE has an Earnings ESP of +1.01% and a Zacks Rank #3.
Sempra Energy Price and EPS Surprise
Sempra Energy price-eps-surprise | Sempra Energy Quote
Edison International through its subsidiaries, generates and distributes electric power. The company also provides energy solutions to commercial and industrial users. Edison International's systematic capital investment strategy strengthens its infrastructure and increases the resilience of its operations. CE forecasts capital expenses of $16.2 billion during the 2022-2024 period.
The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $1.08, implying a decline of 6.9% from the year-ago reported figure. EIX has an Earnings ESP of +0.25% and a Zacks Rank #3.
Edison International Price and EPS Surprise
Edison International price-eps-surprise | Edison International Quote
DTE Energy Company is a holding company with subsidiaries engaged in regulated and unregulated energy businesses. DTE Energy follows a disciplined capital spending program to maintain and upgrade the reliability of its electric utility and gas distribution operations. DTE Energy is investing steadily to enhance its renewable generation assets.
The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $1.22, currently showing an increase of 16.2% from the year-ago reported figure. DTE has an Earnings ESP of +1.79% and a Zacks Rank #3.
DTE Energy Company Price and EPS Surprise
DTE Energy Company price-eps-surprise | DTE Energy Company Quote
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