Can Edison (EIX) Keep the Earnings Streak Alive? - Analyst Blog

Edison International EIX is scheduled to report its first quarter 2014 earnings on Apr 29, 2014 after the market close. Last quarter, Edison International beat expectations with an earnings surprise of 21.5%. We expect the trend to continue in the first quarter as well. Moreover, the company recorded an earnings beat in all the last four quarters, with an average surprise of 20.55%.

Why a Likely Positive Surprise?

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

Positive Zacks ESP: The Earnings ESP (Expected Surprise Prediction), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +2.44%. This is a meaningful and leading indicator of a likely positive earnings surprise for the shares.

Zacks Rank #2 (Buy): Note that stocks with a Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings estimates. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revision.

The combination of Edison International's Zacks Rank #2 and an ESP of +2.44% makes us confident of an earnings beat this quarter.

What is Driving the Better than Expected Earnings?

Rosemead, CA-based Edison International, through its subsidiaries, engages in the supply of electric energy in central, coastal and southern California. The company's chief unit – Southern California Edison (SCE) – operates in a supportive regulatory environment, which would allow the utility to grow to stronger levels with the improvement of the economic environment. Through 2017, SCE continues to target 7%–9% average annual rate base and earnings growth driven by infrastructure investment.

Edison International remains focused on its transmission and distribution infrastructural development programs. It expects to spend $15.1 billion to $17.2 billion for the period 2014 to 2017 under its capital investment plan. This plan mainly focuses on its distribution business, with an allocation of $12.2 billion. The company's second focus is on its transmission business with a capital expenditure plan of $4.0 billion that includes improvement and construction of new transmission lines and substations for system reliability and increased access to renewable energy, comprising the Tehachapi, Coolwater-Lugo and West of Devers transmission and substation projects.

Importantly, in the first quarter 2014, Edison International settled with California consumer advocates on all issues relating to the early retirement of SCE's San Onofre nuclear generating station. Upon successful approval from California Public Utilities Commission, the utility's only regulatory overhang will be SCE's pending general rate case.

Stocks to Consider

While we expect Edison International to beat earnings, there are other utilities also that you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:

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).