Land drilling contractor Nabors Industries Ltd. (NBR) is set to release its third-quarter 2014 results after the closing bell on Tuesday, Oct 21.
In the preceding three-month period, Nabors delivered a positive 4.35% earnings surprise – the third outperformance in the last 4 quarters – aided by impressive U.S. and international operations, along with improved production services.
Factors to Consider This Quarter
The crude price tumble over the last three months is expected to result in lower drilling activity, translating into less work for the likes of Nabors.
Heightened competition and cost pressures in North America on the back of higher shale production-induced activity is expected to drag down profit margin in the region. With Nabors being heavily leveraged to North America through its pressure-pumping business, results may suffer on this front.
Lastly, Nabors’ high natural gas exposure raises its sensitivity to gas price fluctuations. The company remains particularly exposed to this situation since its North American business is heavily biased to gas drilling.
Earnings Whispers?
Our proven model does not conclusively show that Nabors is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.
Negative Zacks ESP: This is because the Most Accurate estimate stands at 36 cents, while the Zacks Consensus is higher at 37 cents. This results in an ESP of -2.70%.
Zacks Rank #3 (Hold): Nabors carries a Zacks Rank #3 (Hold), which when combined with a negative ESP makes surprise prediction difficult.
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 revisions momentum.
Stocks to Consider
While earnings beat looks uncertain for Nabors, here are some energy firms 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:
Enbridge Energy Management LLC (EEQ) has an Earnings ESP of +25.93% and holds a Zacks Rank #1 (Strong Buy).
Tallgrass Energy Partners L.P. (TEP) has an Earnings ESP of +6.67% and holds a Zacks Rank #1.
Delek Logistics Partners L.P. (DKL) has an Earnings ESP of +5.56% and holds a Zacks Rank #1.
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