What Awaits Edison International (EIX) In Q2 Earnings?

Electric utility provider Edison International (NYSE:EIX) is scheduled to report second-quarter 2016 earnings results on Jul 28, after the market closes. Last quarter, the company posted a negative earnings surprise of 7.87%. Let’s see how things are shaping up for this quarter.

Factors at Play

Edison International’s chief unit, Southern California Edison (“SCE”), operates in a supportive regulatory environment that allows the utility to grow systematically. The company is also implementing infrastructure improvement programs like SmartConnect and Solar Photovoltaic Program that focus mainly on system reliability, smart grid technology and compliance with California's renewable energy mandate.

Moreover, Edition International has identified increased capital expenditure opportunities in its regulated operations that could lead to a higher earnings growth rate for the company.

EDISON INTL Price and EPS Surprise

Moreover, warmer-than-usual temperatures during the second quarter in Edison International’s service territories are expected to drive its top line.

However, Edison International’s operations are subject to complex federal, state and local legislative requirements, as well as extensive environmental regulations. The company generates more than 80% of its revenues from regulated utility assets. Hence, the company’s earnings are subject to approvals from regulatory bodies and any adverse ruling could impact its performance.

For instance, the recent settlement regarding the decommissioning of the San Onofre nuclear plant ensures that customers will not have to pay for the cost incurred due to faulty instruments. SCE has already made significant refunds to customers under the concerned settlement. A portion of these refunds is reflected in an 8% average rate reduction announced for this year. The settlement also lowers the amount SCE can recover for its investments in San Onofre.

Earnings Whispers

Our proven model does not conclusively show that Edison International will beat earnings 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) to be able to beat estimates. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -6.00%. This is because the Most Accurate estimate stands at 94 cents, lower than the Zacks Consensus Estimate of $1.00.

Zacks Rank: Though Edison International’s Zacks Rank #3 increases the predictive power of ESP, its negative ESP makes surprise prediction difficult.

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 some stocks in the utility-electric power space that you may want to consider, as our model shows that they have the right combination of elements to post an earnings beat this season:

Avista Corp. (NYSE:AVA) has an Earnings ESP of +2.33% and a Zacks Rank #2. The company is expected to release second-quarter results on Aug 3, before the market opens.

NRG Energy, Inc. (NYSE:NRG) has an Earnings ESP of +53.33% and a Zacks Rank #2. The company is expected to release second-quarter results on Aug 9, before the market opens.

Pattern Energy Group, Inc. (NASDAQ:PEGI) has an Earnings ESP of +100.00% and a Zacks Rank #2. The company is expected to release second-quarter results on Aug 8, before the market opens.