Pinnacle West (PNW) Q2 Earnings: Stock To Disappoint?

Pinnacle West Capital Corporation (NYSE:PNW) will release second-quarter 2016 financial results before the market opens on Aug 2. Last quarter, the utility reported a negative earnings surprise of 69.23%. Let’s see how things are shaping up prior to this announcement.

Factors to Consider

As coal constitutes 31% of Pinnacle West’s generation mix, the company is subject to stringent state and federal regulations related to emission control at its plants. This entails either shutting down coal plants completely or incurring heavy expenses for installing emission control equipment at the facilities, which will eat into its margins.

As it is, planned outages at two units in Four Corners generation plant are expected to dent the company’s earnings in the to-be-reported quarter.

However, above-average temperatures in May and high temperatures in June in its service territories are expected to aid the topline as higher air conditioning requirements will boost electricity sales.

Earnings Whispers

Our proven model does not conclusively show that Pinnacle West Capital 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.

Zacks ESP:The Most Accurate estimate stands at $1.14 while the Zacks Consensus Estimate is pegged higher at $1.17, resulting in an Earnings ESP of -2.56%.

Zacks Rank: Pinnacle West Capital carries a Zacks Rank #4 (Sell).As it is, we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Instead, here are a few utility players that have the right combination of elements to post an earnings beat this quarter.

Pattern Energy Group Inc. (NASDAQ:PEGI) has an Earnings ESP of +100.00% and a Zacks Rank #2. It is expected to report earnings on Aug 8.

Avista Corp. (NYSE:AVA) has an Earnings ESP of +2.33% and a Zacks Rank #2.It is slated to report earnings on Aug 3.

The AES Corporation (NYSE:AES) has an Earnings ESP of +11.11% and a Zacks Rank #3.It is slated to report earnings on Aug 5.