Will California Wildfire Dampen PG&E (PCG) Q4 Earnings?

PG&E Corporation (NYSE:PCG) is set to report fourth-quarter 2017 results on Feb 9, before the market opens.

Last quarter, the company delivered a positive earnings surprise of 19.15%. Moreover, the company surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average earnings beat of 14.71%.

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

Why a Likely Positive Surprise?

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. PG&E Corp is likely to beat on earnings this quarter as it has the right combination.

Zacks ESP: PG&E Corp has an Earnings ESP of +0.48%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: PG&E Corp currently carries a Zacks Rank #3, which along with a positive earnings ESP hints at possible earnings surprise.

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.

Factors at Play

PG&E Corp has a solid portfolio of regulated utility assets that provide a stable earnings base and poise the company for long-term growth.

During third-quarter earnings call, the company announced that it expects to gain 5 cents in rate base earnings during fourth-quarter 2017 and a total of 20 cents in the full year. However, general rate case revenues were adjusted in 2017, resulting in a loss of incremental tax repair benefits of roughly 25 cents annually. This is likely to impact PG&E Corp’s fourth-quarter earnings.

Moreover, the massive California wildfire that occurred last October is expected to weigh on PG&E Corp’s upcoming results. In fact, in December 2017, the company announced suspension of its dividend, citing uncertainty regarding its liability in the deadly California wildfires (per a CNBC report).

To this end, almost 100 lawsuits have been filed against PG&E Corp for allegedly sparking wildfires in Northern California throughout October. With the Insurance Commission claiming damage worth $9.4 billion, there remains a fair chance that PG&E Corp might have to bear a part of that cost, if the results from the pending lawsuits go against the company.

As a result, the Zacks Consensus Estimate for PG&E Corp’s fourth-quarter earnings of 69 cents reflects a 48.1% year-over-year plunge.

Earlier, PG&E Corp announced that it expects to incur insurance costs and legal expenses of $100 million in 2017, owing to the California wildfires. We may expect further updates related to this expense once the company releases fourth-quarter results.

PG&E Corp’s fourth-quarter business was favorably impacted by warmer-than-average temperature which prevailed in most parts of California. This led to increased electricity demand, which in turn is expected to boost the company’s fourth-quarter revenues.

In line with this, the Zacks Consensus Estimate for PG&E Corp’s revenues is pegged at $4.83 billion, reflecting a 2.4% year-over-year increase.

Stocks that Warrant a Look

Here are a few stocks in the Utility space worth considering on the basis of our model which shows that they have the right combination to pull off a beat:

CenterPoint Energy (NYSE:CNP) is expected to report fourth-quarter 2017 results on Feb 22. The company has an Earnings ESP of +7.62% and a Zacks Rank #3.

NiSource (NYSE:NI) is expected to report fourth-quarter 2017 results on Feb 20. The company has an Earnings ESP of +1.45% and a Zacks Rank #3.You can see the complete list of today’s Zacks #1 Rank stocks here.

Westar Energy (NYSE:WR) is expected to report fourth-quarter 2017 results on Feb 21. The company has an Earnings ESP of +4.24% and a Zacks Rank #3.

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