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So far, a handful of the S&P 500 members from the Zacks Utilities sector have released their Q1 earnings. Another cohort of major utility stocks, including Edison International (EIX - Free Report) and Public Service Enterprise Group (PEG - Free Report), is set to announce earnings on Tuesday, May 2.

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 the 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 Q1 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. We expect the Q1 results from utility companies to reflect such clean energy developments.

The passage of Inflation Reduction Act (IRA) is expected 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 more predictable way for a long time, and this will create earnings visibility.

However, the fact that utilities need massive funds to upgrade, maintain, and expand their infrastructure and operations has made their operations difficult in the current interest rate scenario. Thus, the capital-intensive utilities are likely to have experienced higher borrowing costs thanks to the increase in interest rates from near-zero levels, which in turn might have hurt their bottom line performance.

Also, warmer-than-normal weather conditions in major parts of the United States might have unfavorably impacted the utilities’ top-line performance in the January-March quarter.

Q1 Expectations

Total Q1 earnings of utility stocks are expected to decline 4.7% year-over-year, while revenues are likely to improve 7.2%. 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 first-quarter 2023 earnings on Tuesday, May 2 and find out how things have shaped up prior to the announcements.

Edison International delivered a four-quarter average earnings surprise of 13.65%. Its service territories witnessed colder-than-normal temperatures, accompanied with frequent snowfall in some parts. This is likely to have boosted Q1 revenue growth. Higher interest expenses along with higher depreciation expense and wildfire claim payments might have hurt its bottom line.

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.

Edison International has an Earnings ESP of +0.24% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Edison International Price and EPS Surprise

Source: Edison International price-eps-surprise | Edison International Quote

Public Service Enterprise Group delivered a four-quarter average earnings surprise of 5.56%. Its service territories witnessed more or less average temperature pattern accompanied with drought conditions. This is likely to have had a moderate impact on its Q1 revenue growth.

Higher interest expense and the company’s exit of certain basic generation service contract at the end of 2022 might have some adverse impact on its overall bottom-line performance in the first quarter. Public Service Enterprise currently has an Earnings ESP of 0.00% and a Zacks Rank #3.

Public Service Enterprise Group Incorporated Price and EPS Surprise

Source: Public Service Enterprise Group Incorporated price-eps-surprise | Public Service Enterprise Group Incorporated Quote

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