What's in Store for American Electric (AEP) in Q1 Earnings?

·4 min read

American Electric Power Company, Inc. AEP is set to release first-quarter 2020 results on May 6, before market open. In the last reported quarter, the company’s earnings came in line with the Zacks Consensus Estimate.

In the trailing four quarters, American Electric came up with average positive earnings surprise of 5%.

Let’s see how things have shaped up prior to this announcement.

Factors at Play

During the January-March 2020 quarter, some parts of the company's service territories witnessed warmer-than-normal temperatures, while in some other parts temperature remained below normal. Moreover, a few states like Oklahoma, Texas, Arkansas, Tennessee and Louisiana experienced notable storm activities, followed by heavy rainfall.

So, overall, weather conditions seem to have boosted electricity demand in American Electric’s service territory, which, in turn, must have contributed its top-line growth in the soon-to-be-reported quarter.

American Electric Power Company, Inc. Price and EPS Surprise

American Electric Power Company, Inc. Price and EPS Surprise
American Electric Power Company, Inc. Price and EPS Surprise

American Electric Power Company, Inc. price-eps-surprise | American Electric Power Company, Inc. Quote

In December 2019, the Arkansas Public Service Commission (APSC) approved an annual base rate increase of $53 million for American Electric, based upon a 9.45% return on common equity. This favorable rate case outcome is to have boosted the top line.

Moreover, growth in pipeline transportation sector during the first half of the first quarter is likely to have boosted sales from oil and gas industries.

The Zacks Consensus Estimate for American Electric’s first-quarter revenues is pegged at $4.32 billion, indicating a rise of 6.6% from the year-ago quarter figure.

While heavy showers tend to bolster electricity demand, storms before showers cause damages to electricity poles and grids. This many a times pushes up maintenance cost for utility providers.

Considering the fact that in January alone, 396 storms were reported in American Electric’s service areas, its first-quarter results are expected to reflect higher operating and maintenance costs. These costs, in turn, might have weighed on the company’s bottom line in the soon-to-be-reported quarter.

Further, the aforementioned base rate increase, approved by the APSC, also includes increased annual depreciation expense worth $6 billion, which became effective with the first billing cycle in January 2020. This may also have dragged down the company’s quarterly earnings.

The Zacks Consensus Estimate for the company’s first-quarter earnings is pegged at $1.09 per share, suggesting 8.4% decline from the year-ago quarter reported figure.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for American Electric this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here.

Earnings ESP: American Electric has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks to Consider

Here are a few players from the Utilities sector that have the right combination of elements to post an earnings beat when they report first-quarter 2020 results.

Consolidated Edison ED has an Earnings ESP of +0.52% and a Zacks Rank #3. The company is set to announce report results on May 7.

NewJersey Resources NJR has an Earnings ESP of +3.86% and a Zacks Rank #3. The company will release earnings on May 8.

Algonquin Power & Utilities AQN has an Earnings ESP of +1.59% and a Zacks Rank #2. The company is set to announce results on May 7.

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American Electric Power Company, Inc. (AEP) : Free Stock Analysis Report
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