Will Xcel Energy (XEL) Q1 Earnings Disappoint Expectations?

Xcel Energy (NYSE:XEL) will release first-quarter 2016 financial results before the market opens on May 9, 2016. In the prior quarter, this electric and natural gas utility’s earnings were on par with estimates. Let’s see how things are shaping up at the company prior to this announcement.

Factors to Consider

Xcel Energy’s first quarter earnings are expected to benefit from rate increases approved in various jurisdictions in the previous year. However, weather had a negative impact of 7 cents on fourth-quarter 2015 earnings and we expect warm temperatures to again have a detrimental effect in the first quarter.

Amid increasing regulatory pressure, Xcel Energy has resorted to cost reduction initiatives, which are expected to benefit first-quarter results like it did last quarter. The company is proactively lowering its fuel mix for electricity generation. In 2015, coal accounted for 43% of its fuel mix, down from 56% in 2005, which is further expected to go down to 31% in 2030.

Surprise History

The above chart indicates that Xcel Energy was able to deliver a positive surprise in only one out of the last four quarters. This led to an average negative surprise of 1.38%.

Earnings Whispers

Our proven model does not conclusively show that Xcel Energy is likely to beat earnings estimates this quarter. That is because a stock needs to have both positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here.

Zacks ESP: This is because the Most Accurate estimate is 45 cents while the Zacks Consensus Estimate is pegged at 48 cents, resulting in -6.25% ESP.

Zacks Rank: Xcel Energy has a Zacks Rank #4 and when combined with -6.25% ESP makes an earnings beat unlikely this season.

As it is, 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 to Consider

Here are a few stocks in the utility space worth considering on the basis of our model:

TELUS Corporation (NYSE:TU) has an earnings ESP of +3.85% and a Zacks Rank #1. It is expected to report earnings on May 5, 2016.

Consolidated Edison, Inc. (NYSE:ED) has an earnings ESP of +0.82% and a Zacks Rank #3. It is expected to report earnings on May 5, 2016.

Pattern Energy Group Inc. (NASDAQ:PEGI) has an earnings ESP of +466.67% and a Zacks Rank #3. It is expected to report earnings on May 9, 2016.

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