Pattern Energy (PEGI) Earnings Expected to Rise: Should You Buy It?

Wall Street expects year-over-year earnings growth on higher revenues when Pattern Energy (PEGI) reports earnings for the quarter ended December 2019. While this widely known consensus outlook is important in assessing the company’s earnings picture, it is a significant factor that could impact the short-term share price is to compare actual results with these estimates.

The earnings report could help the stock climb higher if these key numbers are better than expected. On the other hand, if they miss, the stock could fall.

While the sustainability of the immediate price change and future earnings expectations will depend primarily on management’s discussion of business conditions during the earnings conference call, it is worth assessing the likelihood of a positive earnings surprise.

Zacks Consensus Estimate

The wind energy producer is expected to report quarterly earnings of $0.25 per share in its upcoming report, which would represent a year-over-year change of +266.7%.

Revenue is expected to be $143 million, up 26.6% from the same quarter last year.

Estimate revision trend

The consensus EPS estimate for the quarter has been revised 71.43% up over the past 30 days to current levels. This is essentially a reflection of how the analysts covering the aggregate have reassessed their initial estimates during this period.

Investors should note that the direction of each analyst’s estimate revisions will not always be reflected in the aggregate change.

Price, Consensus and EPS Surprise

Whispers about earnings

Estimate revisions prior to a company’s earnings release provide an indication of business conditions during the earnings release period. This insight is the basis of our proprietary surprise forecasting model, the Zacks Earnings ESP (Expected Surprise Prediction).

The Zacks Earnings ESP compares the Most Accurate Estimates to the Zacks Consensus Estimates for the quarter; The Most Accurate Estimate is a newer revision of the Zacks Consensus EPS Estimate. The idea is that analysts reviewing their estimates just before an earnings release have the latest information, which could potentially be more accurate than what they and other consensus participants had previously predicted.

Thus, a positive or negative ESP reading theoretically indicates a likely deviation of actual earnings from consensus estimates. However, the model’s predictive power is only significant for positive ESP readings.

A positive Earnings ESP is a strong predictor of an earnings beat, especially when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold). Our research shows that stocks with this combination produce a positive surprise almost 70% of the time, and a solid Zacks Rank actually enhances the predictive power of Earnings ESP.

Please note that a negative Earnings ESP reading does not indicate a missed profit. Our research shows that it is difficult to predict earnings beats with any degree of confidence for stocks with negative Earnings ESP readings and/or Zacks Ranks of 4 (Sell) or 5 (Strong Sell).

How did the benchmark energy numbers come about?

For Benchmark Energy, the Most Accurate Estimate is the same as the Zacks Consensus Estimate, which suggests there is no recent analyst view that differs from what was used to form the basis for the consensus estimate. This resulted in an earnings ESP of 0%.

On the other hand, the stock currently carries a Zacks Rank #5.

The combination of these factors makes it difficult to clearly predict that Pattern Energy will beat consensus earnings per share estimates.

Does the history of surprising results have any clue?

When calculating a company’s future earnings estimates, analysts often wonder how well it was able to match previous estimates. So it’s worth looking at the company’s surprise history to assess its impact on the upcoming number.

For the last reported quarter, it was expected that Pattern Energy would post a loss of $0.01 per share when in fact it produced a loss of $0.53, delivering a surprise of -5200%.

The company has failed to beat consensus EPS estimates in each of the last four quarters.

Summary

Earnings improvement or lack thereof may not be the sole basis for a stock’s rise or fall. Many stocks lose value despite good earnings because of other factors that disappoint investors. Similarly, unforeseen catalysts help many stocks gain despite earnings losses.

That said, betting on stocks that are expected to exceed earnings expectations increases your chances of success. Therefore, it is worth checking the company’s Earnings Rank and Zacks Rank before their quarterly release. Use our Earnings ESP filter to find the best stocks to buy or sell before they report.

Pattern Energy doesn’t seem like a compelling candidate for an earnings beat. However, investors should look at other factors when betting on this stock or staying away from it ahead of its earnings release.

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