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Will CMS Energy (CMS) Disappoint Investors in Q3 Earnings?

Zacks Equity Research
Updated

CMS Energy Corporation CMS is set to report third-quarter 2017 results on Oct 26, before the market opens.

Last quarter, the company posted a negative earnings surprise of 19.51%. However, it surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with an average beat of 1.60%.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

CMS Energy’s regulated electric power operations in Michigan generate relatively stable earnings. However, during the second quarter, the company’s service territory was affected by storms which in turn dented earnings. The third quarter was also adversely impacted by storm activities and thus the company’s bottom line is expected to remain under pressure. In line with this, the company’s third quarter Zacks Consensus Estimate for earnings is pegged at 62 cents, reflecting a year-over-year decline of 12.1%.

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Weather conditions remain a key determinant for the company’s to-be-reported quarter. CMS Energy’s service territories have witnessed above-average temperatures during the third quarter. This will result in lower household expenditures on heating, which may adversely impact revenues.

Nevertheless, the absence of discretionary activities which occurred in the second half of 2016, such as debt pre-funding and relatively high volume of donations, may benefit CMS Energy’s bottom line in the second half of 2017.

Moreover, the company continues to reduce its operation and maintenance (O&M) costs, which, in turn, will facilitate capital investments. In fact, the company has been able to cut down O&M costs by more than 3% for each year of the last decade. It has cut down costs by 6.5% last year, much better than the initial expectation. We expect the company’s cost-reduction efforts to get reflected in the third quarter results as well.

Earnings Whisper

Our proven model does not conclusively shows that CMS Energy is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as we have mentioned below:

Zacks ESP: CMS Energy has an Earnings ESP of -13.82%. This is because the Most Accurate estimate is pegged at 53 cents, lower than the Zacks Consensus Estimate of 62 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

CMS Energy Corporation Price and EPS Surprise

 

CMS Energy Corporation Price and EPS Surprise | CMS Energy Corporation Quote

 

Zacks Rank: CMS Energy currently carries a Zacks Rank #5 (Strong Sell).

Please note that 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 That Warrant a Look

Here are a few players in the Utility sector that have the right combination of elements to post an earnings beat this quarter.

NiSource, Inc. NI will report third-quarter results on Nov 1. The company has an Earnings ESP of +7.69% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

EverSource Energy ES has an Earnings ESP of +1.85% and a Zacks Rank #3. The company is expected to report third-quarter results on Nov 1.

Avista Corporation AVA has an Earnings ESP of +17.24% and a Zacks Rank #3. The company is slated to release third-quarter results on Nov 1.

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CMS Energy Corporation (CMS) : Free Stock Analysis Report
 
NiSource, Inc (NI) : Free Stock Analysis Report
 
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Eversource Energy (ES) : Free Stock Analysis Report
 
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Zacks Investment Research