Range Resources Corporation (RRC) is expected to report fourth-quarter 2014 earnings on Feb 24.
Last quarter, this independent oil and gas company, posted a negative earnings surprise of 8.57%. Notably, Range Resources has lagged the Zacks Consensus Estimate in the three of the last four quarters, with a negative average earnings surprise of 12.89%. Let’s see how things are shaping up prior to this announcement.
Factors Likely to Affect Earnings
Range Resources’ diversified asset portfolio is spread between low-risk/long reserve-life Appalachian assets and large-volume/rapid-payout Gulf Coast properties. The company has an impressive inventory in the Marcellus Shale – one of the prominent emerging shale plays in the U.S. lower 48. The company is advantageously positioned to benefit in the long run from these projects.
Given its dominant position in the Marcellus Shale play and its continuous endeavor to control costs, we believe that Range Resources to be capable of long-term shareholder value creation. This, in turn, is likely to enhance earnings during the fourth quarter.
For 2014, Range Resources expects total production growth of about 24% with estimated production of 1.16 billion cubic feet equivalent (Bcfe) per day. Fourth-quarter production volumes are projected at about 1.27 Bcfe per day, with 31% liquids.
Range Resources revised its capital budget and production growth outlook for 2015. The company lowered its capital spending budget to $870 million from $1.3 billion, to cope with the persistent fall in oil prices.
However, with the majority of Range Resources’ reserves depending on natural gas, the company’s earnings are vulnerable to fluctuations in the natural gas markets. Earlier, the weak gas price environment had compelled the company to reduce its exposure to natural gas drilling.
Earnings Whispers
Our proven model does not conclusively show that Range Resources is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: Earnings ESP for Range Resources is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 22 cents.
Zacks Rank: Range Resources carries a Zacks Rank #4 (Sell). 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, that have the right combination of elements to post an earnings beat this quarter:
Valero Energy Partners L.P (VLP) has Earnings ESP of +3.57% and a Zacks Rank #1 (Strong Buy).
Valero Energy Corporation (VLO) has Earnings ESP of +3.33% and a Zacks Rank #2 (Buy).
Williams Partners L.P. (WPZ) has Earnings ESP of +10.67% and a Zacks Rank #3 (Hold).
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