Utility Stocks Q4 Earnings Lineup For Feb 21: FE, EIX & More

We are fast approaching the end of Q4 Earnings season, with earnings from 411 of the S&P 500 members already out as of Feb 17.The results have been good so far with earnings from the 411 index members up +8.0% on the back of +4.9% higher revenues.

Taking into account the remaining 17.8% of the index members, the overall, S&P 500 earnings are expected to be up 7.4% on 3.9% higher revenues, with growth expected in the positive territory for 12 of the 16 Zacks sectors. This quarter is on track to be the second quarter to record positive growth following five quarters of back-to-back decline. Read more details in our latest  Earnings Preview report.

Amid this positive backdrop, let us focus on the domestic focused mature Utility sector. Only 50% of the Utilities in the S&P 500 group have reported their earnings as of Feb 17, 2017. With earnings of the utility companies that have reported so far were up 18.1% on 7.9% higher revenues.

Utilities Sector 5YR % Return

Utilities Sector 5YR % Return

The regulated nature of operation and domestic focus keeps the utilities insulated from foreign currency fluctuations, which is a serious concern for some other sectors. Additionally, utility services like electricity and water are yet to have any viable alternative. Consequently, this assures steady demand for the services rendered by the utility operators.

Utility operation is capital-intensive and the companies need to approach capital markets for funds. So, the rock-bottom interest rates that prevailed in the U.S. for nearly a decade acted as a tailwind for this sector. Finally, the interest rates were revised upwards in Dec 2015 and again the rates were raised in Dec 2016. Further, the Fed Reserve also announced its intention to increase interest rates for three more times this year if economic conditions are favorable, which does not augur well for utilities.

Trump’s Presidency is expected to benefit defensive and domestic-oriented utilities immensely, though conventional wisdom runs counter to this view in light of underperformance of high-dividend stocks in rising interest rate backdrop.

During Trump’s election campaign, he had vowed to lower the regulatory pressure on domestic manufacturers and suggested increased investment in energy infrastructure. If the new administration indeed starts working on these lines, the entire utility sector is bound to get a boost.

In the fourth quarter of 2016, utility sector earnings are expected to be up 6.1% on 15.5% higher revenues.

Let’s focus on a few utilities that are scheduled to report fourth-quarter numbers on Feb 21.

FirstEnergy Corp (FE - Free Report) reported a positive earnings surprise of 18.42% 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.

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