Is A Beat In Store For Duke Energy (DUK) In Q3 Earnings?

Duke Energy Corp. (NYSE:DUK) , an electric and natural gas utility based in Charlotte, NC, is set to report third-quarter 2016 results before the opening bell on Nov 4.

Last quarter, the company recorded a positive earnings surprise of 5.94%. However, the company missed the Zacks Consensus Estimate in two of the trailing four quarters, the average surprise being a negative 1.20%.

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

Why a Likely Positive Surprise?

Our proven model shows that Duke Energy is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: Duke Energy has an Earnings ESP of +1.29%. That is because the Most Accurate estimate is $1.57 while the Zacks Consensus Estimate is pegged lower at $1.55. This is a meaningful and leading indicator of a likely positive earnings surprise.Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Duke Energy has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.

Conversely, 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.

The combination of Duke Energy’s Zacks Rank #3 and +1.29% ESP makes us reasonably certain of an earnings beat.

What’s Driving the Better-Than Expected Earnings?

Duke Energy continues to develop its domestic infrastructure business. In this connection, the recently completed acquisition of Piedmont Natural Gas and the expansion of the company’s natural gas infrastructure platform are expected to support its transition to a lower carbon future.

Moreover, favorable weather conditions are expected to drive sales in the third quarter; which has been traditionally the company’s strongest quarter over the year.

Further, at the onset of the third quarter, management filed a request with the Public Service Commission of South Carolina to raise the base rate which will boost the company’s revenues by about $79 million. Also, the company’s recent investments in energy infrastructure will enable it to offer affordable, reliable and cleaner energy to customers. These investments, in turn, are expected to make a stronger case for the rate hike proposal.

Duke Energy has also been making significant investments in cleaner energy resources and technologies to modernize its energy grid and provide better services to customers. The company’s growth opportunities for natural gas infrastructure across its service territories, particularly in the Southeast, also buoy optimism.

Considering these positives, the company continues to expect 2016 earnings in the range of $4.50–$4.70 per share.

For the third quarter, the Zacks Consensus Estimate for earnings is $1.55 a share, reflecting an increase of 5.15% year over year, while the consensus for revenues is pegged at $6.68 billion, implying 3% year-over-year growth.

Other Stocks to Consider

Here are a few other 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:

Pattern Energy Group Inc. (NASDAQ:PEGI) has an earnings ESP of +16.67% and a Zacks Rank #2. The company is scheduled to release third-quarter results on Nov 7.

Ameren Corporation (NYSE:AEE) is scheduled to report on Nov 4. It has an earnings ESP of +2.90% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

American Water Works Company, Inc. (NYSE:AWK) has an earnings ESP of +2.00% and a Zacks Rank #2. The company is slated to release results on Nov 2.

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