4 Utility Stocks Likely To Beat Q2 Earnings Estimates

The performance of utilities doesn’t usually fluctuate due to their traditional safe-investment appeal to investors. The regulated nature of their business gives their revenues a high level of certainty. Moreover, domestic orientation shields them from foreign currency translation headwinds.

However, the sector underperformed the S&P 500 in the first half of 2017 on concerns over rising interest rates. The industry gained 4.7% during this period compared with the S&P 500’s rally of 8.3%.

Historically, electric utilities have heavily relied on coal for a large part of power generation. This has become a big challenge for the utilities in these times of enhanced environmental awareness. However, President Trump’s decision to repeal the Clean Power Plan and walk out of the Paris Agreement will definitely provide fresh life for the coal-based electricity units.

The utility sector is capital-intensive. These companies need huge capital to set up generation facilities, and transmission and distribution infrastructure. The Federal Reserve has raised the rates twice in 2017 – in March and June. This will definitely affect the margins of the utilities.

However, with the rising interest rates reducing the value of bonds, the appeal of stable regular dividend paying utilities will entice investors.  

Q2 Performance

Going by our weekly Earnings Outlook, four out of the 16 sectors in the Zacks coverage universe are expected to witness an earnings decline for Q2. The utility sector will likely see an earnings decline of 2.7%.

How to Make a Choice

Given the plethora of players in the Utility space, picking the right stock is a daunting task. But our proprietary methodology makes it fairly simple. One can narrow down the list with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP, which is the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. It helps in picking stocks that have high chances of delivering earnings surprises in their next earnings announcement.
 
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

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