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Will Sempra Energy (SRE) Upset Investors in Q4 Earnings?

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Sempra Energy (SRE - Free Report) will report fourth-quarter 2016 earnings results, before the opening bell on Feb 28.

Last quarter, Sempra Energy recorded a 5.15% positive earnings surprise. However, in the trailing four quarters, the company recorded an average negative surprise of 3.37%.

Let’s see how things are shaping up for the fourth quarter.

Factors to Consider

The company continues with systematic investments in its infrastructure development projects. For 2016, the company earlier announced its expectation to spend $6.3 billion for capital expenditure and investment.

During the yet-to-be reported quarter, the company’s Mexican unit IEnova raised $1.6 billion in a follow-on equity issuance, primarily to finance the PEMEX acquisition and other growth. Further, IEnova closed the acquisition of the Ventika I and Ventika II wind generation facilities in Mexico by the end of the fourth quarter. These initiatives reflect Sempra Energy’s focus to bolster its market growth in Mexico.

On the flip side, the Aliso Canyon gas leak event caused SoCalGas to incur estimated cost of $763 million, as of Sep 30, 2016. During the third quarter, there was an increase of $46 million in estimated costs owing to this leak and this increase can be expected to even rise more in days ahead. Since the report for root cause analysis of the incident is expected to be submitted around sometime in the first half of 2017, the increased costs can be anticipated to hamper the company’s fourth quarter results.

Earnings Whispers

Our proven model does not conclusively show that Sempra Energy is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as you will see below.

Zacks ESP: Sempra Energy has an Earnings ESP of -2.82%. This is because the Most Accurate estimate of $1.38 lies below the Zacks Consensus Estimate of $1.42. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Sempra Energy Price and EPS Surprise

 

Sempra Energy Price and EPS Surprise | Sempra Energy Quote

Zacks Rank: Sempra Energy’s Zacks Rank #2, when combined with a negative Earnings ESP of 2.82%, makes surprise prediction difficult for this quarter.

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 that Warrant a Look

Here are a few Utility stocks that have the right combination of elements to post an earnings beat this quarter:

Spark Energy, Inc. is set to release quarterly results on Mar 9. The company currently has a Zacks Rank #1 and has an Earnings ESP of +14.43%.

Chesapeake Utilities Corporation (CPK - Free Report) is expected to release its quarterly report on Feb 28. The company currently carries a Zacks Rank #3 and has an Earnings ESP of +4.11%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lumos Networks Corp. is slated to report its quarterly report on Mar 7. The company currently has a Zacks Rank #3 and has an Earnings ESP of +40.00%.

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