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What's in Store for FirstEnergy (FE) This Earnings Season?

FirstEnergy Corporation FE is set to release second-quarter 2017 financial results after the market closes on Jul 27. Last quarter, this power management company delivered a positive earnings surprise of 9.86%.  

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

Factors to Consider

FirstEnergy expects earnings per share for the second quarter to be in the range of 54 cents to 64 cents per share. The company secured regulatory approvals for base rate increase in Pennsylvania, New Jersey and Ohio which are expected to boost the company’s top line.

However, rising debt level remains a headwind for the company. FirstEnergy’s debt/capital ratio stands at 74.3% compared with the industry’s average of 49.7% and the S&P 500’s 41.9%. Moreover, the company’s current ratio stands at 0.36, which indicates that rising interest rates do not bode well for FirstEnergy. Also, the choppy return from competitive electric markets might adversely impact the company’s second-quarter result.

Earnings Whispers

Our proven model does not conclusively show that FirstEnergy is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen.

But that is not the case here, as you will see below. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zacks ESP: The Most Accurate estimate is at 58 cents while the Zacks Consensus Estimate is pegged at 59 cents, resulting in an Earnings ESP of -1.70%.

Zacks Rank: FirstEnergy has a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.

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

Stocks to Consider

Here are a few companies in the utility sector that have the right combination of elements to post an earnings beat this quarter.

Pattern Energy Group Inc. PEGI has an Earnings ESP of +23.08 and carries a Zacks Rank #2. It is slated to report second-quarter 2017 earnings on Aug 4.

The AES Corp. AES has an Earnings ESP of +20.00% and holds a Zacks Rank #2. It is slated to report second-quarter 2017 earnings on Aug 8.

Xcel Energy Inc. XEL has an Earnings ESP of +2.38% and holds a Zacks Rank #3. It is slated to report second-quarter 2017 earnings on Jul 27.

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