Oil giant BP plc (BP) is expected to report fourth-quarter 2014 earnings on Feb 3, before the opening bell.
The company’s earnings history is a mixed bag. BP has beaten the Zacks Consensus Estimate in two of the trailing four quarters while missing the same in the other two. In the last reported quarter, the company delivered a positive earnings surprise of 10.0%. Let’s see how things are shaping up for this announcement.
Factors Likely to Affect Earnings
During the third quarter, BP’s Downstream earnings declined due to weaker refining margins (particularly in the U.S.) as well as the absence of earnings from the divested Texas City and Carson refineries. Total production also fell on an annualized basis mainly due to divestments and the effects of the Abu Dhabi onshore concession expiry in January. Thus, the results raise concerns with respect to its performance in the to-be-reported quarter and coming years.
Moreover, BP has projected full-year 2014 production level to be lower than 2013 due to the expiry of the Abu Dhabi onshore concession and the effect of divestments. The company announced divestitures of several non-core assets that comprise interests in many North Sea oil and gas fields and in its Yacheng gas field in the South China Sea.
The company has a fund-raising objective of about $10 billion by the end of 2015. Since the start of 2010, BP’s asset sale program accounted for about 16% of its 2010 production (excluding TNK-BP) and around $5 billion of pre-tax earnings and $5 billion of after-tax operating cash flow.
However, the company continues to maintain its position as a leading energy sector firm, with a robust position among global offshore drillers. It also offers a promising dividend yield.
Earnings Whispers
Our proven model does not conclusively show that BP is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently -35.37%. This is because the Most Accurate estimate stands at 53 cents while the Zacks Consensus Estimate is higher at 82 cents.
Zacks Rank: BP holds a Zacks Rank #5 (Strong Sell) which lowers the predictive power of ESP. 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.
Stocks to Consider
Here are some companies from the same space which, according to our model, have the right combination of elements to post an earnings beat this quarter:
Canadian Solar Inc. (CSIQ) has Earnings ESP of +2.94% and a Zacks Rank #1 (Strong Buy).
Valero Energy Corporation (VLO) has Earnings ESP of +4.35% and a Zacks Rank #3 (Hold).
Phillips 66 (PSX) has Earnings ESP of +3.73% and a Zacks Rank #3.
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