Brazilian state-run energy giant Petroleo Brasileiro S.A. or Petrobras (PBR) is expected to release its third-quarter 2014 results on Friday, Oct 24.
In the preceding three-month period, Petrobras delivered a negative 25.00% earnings surprise – the third underperformance in the last 4 quarters – hampered by higher exploration expenses. Moreover, cap on pump prices, fixed by the government, impacted the company’s profit considerably. Let’s see how things are shaping up for this announcement.
Factors to Consider This Quarter
The Brazilian government, the company’s majority shareholder with a 54% stake, has a history of political interference in Petrobras’ affairs. As a result, despite the company’s expertise in deep-water operations, its huge recent discoveries and increase in oil production, Petrobras routinely incurs losses.
In particular, while the upstream business is doing fine, the downstream segment is a drag on the overall results. The government caps the prices of domestic refined products so as to meet the needs of the people. These price regulations do not allow Petrobras to pass high refining costs to consumers.
Earnings Whispers?
Our proven model does not conclusively show that Petrobras 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 28 cents, while the Zacks Consensus is higher at 30 cents. This results in an ESP of -6.67%.
Zacks Rank #3 (Hold): Petrobras 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 Petrobras, 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:
Delek Logistics Partners L.P. (DKL) has an Earnings ESP of +5.56% and holds a Zacks Rank #1 (Strong Buy).
EQT Midstream Partners L.P. (EQM) has an Earnings ESP of +9.41% and holds a Zacks Rank #2 (Buy).
Alon USA Energy Inc. (ALJ) has an Earnings ESP of +1.75% and holds a Zacks Rank #2.
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