On Wednesday, Atlantic Power will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.
Atlantic Power is a little-known utility that serves areas in the U.S. and Canada. Until recently, the company was popular for its high dividend yield, but that mark of distinction proved fleeting, leaving investors with a big dilemma. Let's take an early look at what's been happening with Atlantic Power over the past quarter and what we're likely to see in its quarterly report.
Stats on Atlantic Power
Analyst EPS Estimate
Change From Year-Ago Revenue
Earnings Beats in Past 4 Quarters
Source: Yahoo! Finance.
Can Atlantic Power ever recover?
Analysts have gotten extremely pessimistic about Atlantic Power's future earnings prospects, having reversed initial estimates a few months ago for a first-quarter gain and having more than tripled their loss estimates for the full 2013 year. The stock has delivered a frightful performance, plunging more than 60% since late January.
The big reason for Atlantic Power's drop came in its unexpectedly bad fourth-quarter earnings report in late February. Revenue fell 9% from the year-ago quarter, missing expectations by more than 25%, and the company's per-share loss came in roughly 10 times what analysts had anticipated. Even worse, Atlantic Power cut its dividend by almost two-thirds, and only the stock's plunge has kept its yield high, at 8% currently.
Since then, Atlantic Power has made a number of moves to try to shore up its business. The company sold its interest in its Path 15 transmission project to a joint venture including Duke Energy for almost $200 million in cash and assumed debt. The move basically puts Atlantic Power all-in on its natural gas prospects, and with prices of nat-gas starting to rebound, that decision could prove a costly one going forward.
Yet the big question facing Atlantic Power is whether its dividend reduction will be enough to turn its prospects around. Exelon made its own payout cut of 40% in February, but its stock has actually risen in light of the announcement, as investors believe that the company will be better off with its new payout policy. Atlantic Power, by contrast, is facing shareholder lawsuits about its dividend cut.
In Atlantic Power's report, watch for comments about whether it has made progress in renewing some of its important contractual agreements. With so much uncertainty, any good news Atlantic Power can muster could make a big difference for investors.
Like Atlantic Power, Exelon cut its dividend recently. But investors are excited that Exelon is perfectly positioned to capitalize on having the largest nuclear fleet in North America. This strength, combined with an increased focus on balance sheet health and its recent merger with Constellation, places it on a short list of the top utilities. To determine if Exelon is a good long-term fit for your portfolio, you're invited to check out The Motley Fool's premium research report on the company. Simply click here now for instant access.
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The article Atlantic Power Faces a Make-or-Break Quarter originally appeared on Fool.com.
Motley Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Exelon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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