PG&E Corp. (PCG) Likely to Miss Earnings on San Bruno Woes - Analyst Blog

PG&E Corporation PCG is scheduled to report first quarter 2014 results before the opening bell on May 1. Last quarter, the utility had posted an earnings surprise of +5.0%. Let's see how things are shaping up for this announcement.

Factors at Play

PG&E Corporation continues to make considerable progress on gas related commitments and its target for electric system safety and reliability. The company invested around $5.2 billion in 2013 under its capital spending program and plans to invest $5–$6 billion in 2014. Of the total, a major portion is apportioned for electricity distribution and transmission projects. These initiatives will enable PG&E to provide uninterrupted services to its customers.

Although PG&E is committed to ensure the safety of its gas pipeline systems, the tragic incident at San Bruno on Sep 9, 2010, will continue to adversely impact its results of operations and cash flows.

Recently, Federal prosecutors said they plan to amend their indictment against the company to ask for more significant fines based on the 12 felony charges the utility faces in the 2010 San Bruno pipeline blast. This California utility was charged with knowingly breaking federal safety rules. The company could face a maximum fine of over $6 million, if the court decides that the company stood to gain financially or saved money as a result of criminal misconduct.

Accidents and calamities pose a major headwind for energy companies like PG&E. Going forward, the company is required to be more cautious following the San Bruno accident to provide safe, reliable, and affordable service to its customers. Since the San Bruno accident, the company has incurred and is committed to incur over the next several years an amount more than $2.2 billion for natural gas pipeline safety-related work. In addition, the reputation of PG&E Corporation has been brought into question by the San Bruno accident.

Earnings Whispers?

Our proven model does not conclusively show that PG&E is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP for PG&E is -7.35% since the Most Accurate estimate is 63 cents per share while the Zacks Consensus Estimate is 68 cents.

Zacks Rank: PG&E's Zacks Rank #3 (Hold) when combined with a negative ESP makes surprise prediction difficult.

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that they have the right combination of elements, i.e., a positive Zacks Earnings ESP and a Zacks Rank #1, #2 or #3.

NRG Yield, Inc. NYLD, Earnings ESP of +23.53% and Zacks Rank #1 (Strong Buy).

Calpine Corp. CPN, Earnings ESP of +28.57% and Zacks Rank #2 (Buy).

Exelon Corp. EXC, Earnings ESP of +6.94% and Zacks Rank #2 (Buy).