All posts from Zacks
Zacks in Our Research. Your Success.,

What's in Store for American Electric (AEP) in Q3 Earnings?

American Electric Power Company, Inc. AEP is set to release third-quarter 2017 financial results on Oct 26, before the market opens. Last quarter, this electric utility witnessed a negative earnings surprise of 8.54%.

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

Factors to Consider

American Electric is highly dependent on coal for production of electricity. Therefore, President Trump’s emphasis on improving the coal industry and relaxing the stringent environmental regulations in recent times are likely to boost the company’s prospects in the near term..

Also, American Electric is expected to benefit from the improving economic conditions in its service territories and its efficient cost-management initiatives.

Markedly, Ohio and Texas represents more than one-half of utility revenues of the company. However, the power generation from these states is deregulated, consequently leading to the current lower price environment. This, in turn, is expected to hurt earnings of American Electric Power.

Moreover, hurricane Harvey that hit the coasts of Texas at the onset of last month, hampered the smooth flow of electricity through the transmission lines leading to widespread outages in the state. As American Power’s subsidiary, AEP Texas, engaged in the transmission and distribution of electric power to approximately 1 million retail customers therein, we expect the company’s third-quarter bottom line to be affected severely.

In line with this, the Zacks Consensus Estimate reflected an annual decline of 3.6% on  revenues of $4.17 billion, reflecting a 10.4% decline year over year.

Earnings Whispers

Our proven model does not conclusively show that American Electric will 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.

Zacks ESP: American Electric has an Earnings ESP of -2.39%, this is because the Most Accurate estimate is $1.22 while the Zacks Consensus Estimate is pegged at $1.25. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: American Electric carries 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 a Zacks Rank #4 or 5 (Sell rated) 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.

NiSource, Inc. NI will report third-quarter results on Nov 1. The company has an Earnings ESP of +7.69% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

EverSource Energy ES has an Earnings ESP of +1.85% and a Zacks Rank #3. The company is expected to report third-quarter results on Nov 1.

Avista Corporation AVA has an Earnings ESP of +17.24% and a Zacks Rank #3. The company is slated to release third-quarter results on Nov 1.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
American Electric Power Company, Inc. (AEP): Free Stock Analysis Report
NiSource, Inc (NI): Free Stock Analysis Report
Avista Corporation (AVA): Free Stock Analysis Report
Eversource Energy (ES): Free Stock Analysis Report
To read this article on click here.
Zacks Investment Research