Three energy companies preparing to release second-quarter earnings this week may be positioned for positive results, according to analysts at Morgan Stanley.
Overall, the firm in a July 25 note said that for regulated energy companies, this earnings season “will be characterized by heightened sensitivity to beats and misses given a broader defensive leaning within the sector and preference for companies with strong execution.”
Among independent power producers, the financial services company says it has a preference for Vistra given the recent heat wave in Texas, high energy prices and the company’s unhedged generation capacity. In a previous research note, the firm estimated Vistra would see roughly $10 million more in earnings before interest, taxes, depreciation, and amortization each hour the Texas grid operates at its peak price of $5,000/MWh.
Morgan Stanley sees Vistra “well positioned to benefit from the heatwave underway in TX, both from realization of potential upside in 3Q from power price spikes along with the opportunity to layer on additional hedges in future years at attractive prices to increase the EBITDA outlook,” Morgan Stanley analysts said.
Vistra is scheduled to publish its second-quarter results on Aug. 5, and analysts are anticipating earnings of $0.40/share on revenue of $3.76 billion, according to the average of analyst estimates tracked by Google.
The Texas heat could also benefit Sempra, which owns an 80% stake in the state’s largest distribution utility, Oncor Electric, analysts said.
Sempra is expected to issue second-quarter results on Thursday, and analysts expect earnings of $1.78/share on revenue of $3 billion. However, Morgan Stanley sees “the potential for a $0.10 beat” and said the company could be “well positioned to achieve its full year guide and we could see a shift upward in the range (though likely later in the year).”
In May, Sempra updated its 2022 GAAP earnings per common share guidance range to $7.11 to $7.71 and affirmed its full-year 2022 adjusted earnings per share guidance range of $8.10 to $8.70 per share.
Exelon, which owns six fully regulated transmission and distribution utilities on the East Coast and in Chicago, is expected to issue earnings on Wednesday, and Morgan Stanley sees a “constructive” setup for the company.
“We expect a quiet quarter to resonate favorably in the current defensive posturing within the sector, continuing to prove out the company's ability to execute on earnings,” the firm said.
Analysts say they are anticipating Exelon second quarter earnings of $0.46/share on revenues of $3.92 billion.
