The companies belonging to the Zacks Utilities sector are responsible for a continuous supply of electricity, potable water and natural gas and providing wastewater services. Utilities across the United States are providing relentless services to millions of customers. So far, 32.1% of the utilities have reported fourth-quarter results, registering 3.6% earnings growth on the back of a 14.6% revenue improvement.

Per the current Earnings Trends report, the utility sector’s fourth-quarter earnings are expected to decline 1.5%, while revenues are estimated to improve 10.5%.

Key Factors at Play in Q4

A transition in the utility space is quite evident. The utilities remained focused on making systematic investments to add renewable energy sources to their generation portfolios and reduce emissions. Investment in expanding and strengthening transmission and distribution (T&D) lines has been making the utility infrastructure more resilient. Smart Grids and the ongoing undergrounding of T&D lines in the weather-affected areas have been enabling utilities to provide 24X7 services to customers even during adverse climatic conditions.

Despite the threat of the new variant of COVID-19, the overall improvement in economic conditions in the United States and the restart of commercial and industrial activities have been creating fresh demand for utility services. The increasing customer base of the utilities is expected to have boosted their fourth-quarter performance.

Utilities have been focused on increasing their operational efficiency through the incorporation of advanced technology in their operations, installing smart meters and guiding customers about the efficient usage of electricity. The new utility rates approved by different commissions across the United States are also likely to have positively impacted fourth-quarter earnings.  

Per the National Oceanic and Atmospheric Administration release, the December contiguous U.S. temperature was 39.3 degrees F, 6.7 degrees above average, making it the warmest December on record. No doubt, warmer-than-normal weather conditions in December 2021 are likely to have adversely impacted the demand for utility services. In December, the sudden outbreak of tornados in some southern states of the United States disrupted water and electricity services, thereby impacting earnings.

Picking Winners From the Utility Space

Choosing the right stock for one’s portfolio from too many participants is certainly a tough job. An easy way to streamline the list is by selecting stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Per our proprietary methodology, Earnings ESP is a determining factor for zeroing in on stocks with the maximum chances of beating on earnings. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Our research shows that stocks with the right combination of the two key ingredients have 70% higher chances of delivering an earnings surprise.

For investors looking to find winners, we have highlighted four Utility stocks that are poised to beat fourth-quarter earnings estimates.

Utility Picks for Q4

American Electric Power Company’s (AEP Quick QuoteAEP - Free Report) service territories witnessed mixed weather patterns in the fourth quarter. The reopening of economic activities resulted in an increase in the demand from industrial and commercial customers, which is likely to boost fourth-quarter results. Proper management of costs and low interest rates are likely to have aided AEP’s performance in the fourth quarter.

American Electric Power has an Earnings ESP of +0.43% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

American Electric Power is scheduled to report quarterly results on Feb 24.

Weather conditions had a moderate impact on Public Service Enterprise Group’s (PEG Quick QuotePEG - Free Report) performance during the fourth quarter. The improving economic conditions have been creating more demand from commercial and industrial customer groups, which is likely to have positively impacted fourth-quarter earnings. New rates approved in the second half of 2021 may also have had a positive impact on earnings.

Public Service Enterprise has an Earnings ESP of +0.37% and a Zacks Rank #3. Public Service Enterprise is scheduled to report quarterly results on Feb 24.

Avista Corporation’s (AVA Quick QuoteAVA - Free Report) fourth-quarter earnings are expected to have benefited from the new electric and gas rates implemented in its service territories. Fourth-quarter earnings are likely to have benefited from steady demand from its customer base.

Avista has an Earnings ESP of +3.70% and a Zacks Rank #3. Avista is scheduled to report quarterly results on Feb 23.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.