FBR Capital on Utilities: 1Q11 Earnings Preview: Integrated Utilities Could Catch a Bid
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Rating Summary:
16 Buy, 12 Hold, 0 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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FBR Capital on Utilities: 1Q11 Earnings Preview: Integrated Utilities Could Catch a Bid
FBR analyst says, "First quarter earnings could bode well for integrated utilities. This group has lagged regulated utilities since the end of the last earnings season, despite a rally in forward power prices that has the potential to lift earnings estimates. In addition, the thesis for a power market recovery could receive a boost as coal heavy regulated utilities use their bully pulpit to emphasize the stringency of the EPA’s proposed air toxics rules. Thus, we expect that integrated names could outperform their regulated counterparts near term, reversing a trend we have seen over the last five earnings season, and offering the opportunity for a short-term relative trade. Weather is unlikely to be a major driver year over year, but we note that electricity volumes in the Southeast (a region that represents 25% of U.S. volumes) were down 5%, most likely due to mild weather. With respect to specific names this earnings season, we have a positive near-term bias for FE, PCG, and a negative bias for TE for reasons discussed within."
"FirstEnergy (NYSE: FE): We are raising our 1Q11 EPS estimate to $0.74 from $0.71 to reflect colder weather and fewer nuclear and fossil outages. Guidance with Allegheny will be provided at the analyst day. We have a positive bias ahead of FE earnings due to possible upward earnings revisions and more disclosure on synergies to be achieved in the merger with Allegheny. We expect guidance for 2011 to be in the $3.20 range, slightly above consensus, and have increased our long-term earnings outlook as we incorporate new forward prices in our model.
Our price target remains $39."
"PG&E (NYSE: PCG): We are maintaining our 1Q11 EPS estimate of $0.84 versus consensus of $0.83. We have a positive bias as we enter earnings. Resolution of the General Rate Case (GRC) could take place on May 5. 2011, just following 1Q11 earnings on May 3, 2011. We do not expect any surprises in the actual quarter."
"TECO (NYSE: TE): We are maintaining our 1Q11 EPS estimate of $0.27, below consensus of $0.30. We have a negative bias for TECO as we enter earnings due to high expectations for the coal segment and a possible earnings miss."
"PSEG (NYSE: PEG): We are raising our 1Q11 EPS estimate to $0.77 from $0.71 on colder weather, versus consensus of $0.75. We enter earnings for PEG with a neutral bias. Positive drivers in the quarter are likely a boost from colder weather in PSEG’s service territory, the reversal of O&M storm expense and Medicare Part D tax items, and the benefit of the electric/gas and transmission rate increases."
"Southern (NYSE: SO): We are raising our estimate to $0.49 from $0.47 on a weather adjustment, but remain below consensus of $0.51. We enter earnings with a neutral bias for Southern. SO guidance is $0.47 for the quarter."
"Entergy (NYSE: ETR): We are raising our 1Q11 EPS estimate to $1.38 from $1.30 to reflect ETR’s preannouncement. We enter earnings with a neutral bias for Entergy. On April 19, 2011, ETR preannounced 1Q11 operational earnings of $1.37, beating our estimate of $1.32 and consensus of $1.30. The company also reaffirmed 2011 guidance of $6.35 to $6.85 versus consensus of $6.57 and our estimate of $6.65."
"Duke (NYSE: DUK): We are maintaining our 1Q11 EPS estimate to $0.34 versus consensus of $0.35. We have a neutral bias as we enter earnings. Positive drivers in the quarter include a lower tax rate, higher weather adjusted volumes, higher international earnings, and the reversal of a contribution to Duke Energy foundation."
"SCANA (NYSE: SCG): We are maintaining our 1Q11 EPS estimate of $0.95 versus consensus of $0.98. We have a neutral bias as we enter earnings. Positive drivers will include uplift from the electric rate case and BLRA increases."
"Progress (NYSE: PGN): We are raising our 1Q11 EPS estimate to $0.69 from $0.66 as we incorporate year-over-year incremental drivers. Consensus is $0.66. We have a neutral bias as we enter earnings. Positive drivers of earnings for the quarter will include investment recovery and load growth. Weather will be among the negative drivers, year over year, since favorable weather contributed $0.18 to 1Q10."
PPL (NYSE: PPL): We are maintaining our 1Q11 EPS estimate of $0.75 versus consensus of $0.72. We have a neutral bias as we enter earnings, but expect a modest earnings beat. Positive drivers in the quarter will include LG&E earnings of roughly $0.14. Negative drivers will likely include a decline in supply earnings as east margins contract, and equity dilution."
FBR analyst says, "First quarter earnings could bode well for integrated utilities. This group has lagged regulated utilities since the end of the last earnings season, despite a rally in forward power prices that has the potential to lift earnings estimates. In addition, the thesis for a power market recovery could receive a boost as coal heavy regulated utilities use their bully pulpit to emphasize the stringency of the EPA’s proposed air toxics rules. Thus, we expect that integrated names could outperform their regulated counterparts near term, reversing a trend we have seen over the last five earnings season, and offering the opportunity for a short-term relative trade. Weather is unlikely to be a major driver year over year, but we note that electricity volumes in the Southeast (a region that represents 25% of U.S. volumes) were down 5%, most likely due to mild weather. With respect to specific names this earnings season, we have a positive near-term bias for FE, PCG, and a negative bias for TE for reasons discussed within."
"FirstEnergy (NYSE: FE): We are raising our 1Q11 EPS estimate to $0.74 from $0.71 to reflect colder weather and fewer nuclear and fossil outages. Guidance with Allegheny will be provided at the analyst day. We have a positive bias ahead of FE earnings due to possible upward earnings revisions and more disclosure on synergies to be achieved in the merger with Allegheny. We expect guidance for 2011 to be in the $3.20 range, slightly above consensus, and have increased our long-term earnings outlook as we incorporate new forward prices in our model.
Our price target remains $39."
"PG&E (NYSE: PCG): We are maintaining our 1Q11 EPS estimate of $0.84 versus consensus of $0.83. We have a positive bias as we enter earnings. Resolution of the General Rate Case (GRC) could take place on May 5. 2011, just following 1Q11 earnings on May 3, 2011. We do not expect any surprises in the actual quarter."
"TECO (NYSE: TE): We are maintaining our 1Q11 EPS estimate of $0.27, below consensus of $0.30. We have a negative bias for TECO as we enter earnings due to high expectations for the coal segment and a possible earnings miss."
"PSEG (NYSE: PEG): We are raising our 1Q11 EPS estimate to $0.77 from $0.71 on colder weather, versus consensus of $0.75. We enter earnings for PEG with a neutral bias. Positive drivers in the quarter are likely a boost from colder weather in PSEG’s service territory, the reversal of O&M storm expense and Medicare Part D tax items, and the benefit of the electric/gas and transmission rate increases."
"Southern (NYSE: SO): We are raising our estimate to $0.49 from $0.47 on a weather adjustment, but remain below consensus of $0.51. We enter earnings with a neutral bias for Southern. SO guidance is $0.47 for the quarter."
"Entergy (NYSE: ETR): We are raising our 1Q11 EPS estimate to $1.38 from $1.30 to reflect ETR’s preannouncement. We enter earnings with a neutral bias for Entergy. On April 19, 2011, ETR preannounced 1Q11 operational earnings of $1.37, beating our estimate of $1.32 and consensus of $1.30. The company also reaffirmed 2011 guidance of $6.35 to $6.85 versus consensus of $6.57 and our estimate of $6.65."
"Duke (NYSE: DUK): We are maintaining our 1Q11 EPS estimate to $0.34 versus consensus of $0.35. We have a neutral bias as we enter earnings. Positive drivers in the quarter include a lower tax rate, higher weather adjusted volumes, higher international earnings, and the reversal of a contribution to Duke Energy foundation."
"SCANA (NYSE: SCG): We are maintaining our 1Q11 EPS estimate of $0.95 versus consensus of $0.98. We have a neutral bias as we enter earnings. Positive drivers will include uplift from the electric rate case and BLRA increases."
"Progress (NYSE: PGN): We are raising our 1Q11 EPS estimate to $0.69 from $0.66 as we incorporate year-over-year incremental drivers. Consensus is $0.66. We have a neutral bias as we enter earnings. Positive drivers of earnings for the quarter will include investment recovery and load growth. Weather will be among the negative drivers, year over year, since favorable weather contributed $0.18 to 1Q10."
PPL (NYSE: PPL): We are maintaining our 1Q11 EPS estimate of $0.75 versus consensus of $0.72. We have a neutral bias as we enter earnings, but expect a modest earnings beat. Positive drivers in the quarter will include LG&E earnings of roughly $0.14. Negative drivers will likely include a decline in supply earnings as east margins contract, and equity dilution."
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