Domestic oil and gas explorer Energy XXI Ltd. (EXXI) is set to release its second-quarter fiscal 2015 results on Monday, Feb 9.
In the preceding three-month period, Energy XXI – which bought oil-weighted Gulf of Mexico (GoM) shallow water properties from Exxon Mobil Corp. (XOM) in 2010 – delivered a negative 242.86% earnings surprise on lower commodity price realizations.
Let’s see how things are shaping up for this announcement.
Factors to Consider This Quarter
Crude prices have fallen over 50% since June last year when it was trading over the $100 per barrel mark. Energy XXI, being engaged in exploration and development activities, is directly exposed to the commodity. Reduced prices are expected to significantly impact the company’s revenues, earnings and cash flow.
The company’s high operating leverage and costs have made matters worse.
Earnings Whispers
Our proven model does not conclusively show that Energy XXI 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. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: Earnings ESP which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -3.57%. The Most Accurate estimate for Energy XXI stands at a loss of 29 cents while the Zacks Consensus Estimate is pegged at a narrower loss of 28 cents.
Zacks Rank: Energy XXI carries a Zacks Rank #4 (Sell), which complicates the forecasting power of ESP.
As it is, 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
While an earnings beat looks uncertain for Energy XXI, here are some 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:
LRR Energy L.P. (LRE) has an Earnings ESP of +3.13% and a Zacks Rank #2 (Buy). The partnership is slated to release earnings on Mar 3.
Tesoro Corp. (TSO) has an Earnings ESP of +1.35% and a Zacks Rank #2. The company is likely to release earnings on Feb 11.
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