Chinese energy giant PetroChina Co. Ltd. PTR is expected to release its first-quarter 2015 results on Thursday, Apr 23.
In the preceding three-month period, PetroChina delivered a negative 18.45% earnings surprise on the back of sharp drop in oil prices.
Let’s see how things are shaping up for this announcement.
Factors to Consider This Quarter
China’s impressive economic growth has significantly increased its demand for oil, natural gas and chemicals. Moreover, PetroChina believes that all the fundamentals of the Chinese economy are ideal for the country’s long-term growth. Being one of the two integrated oil companies in China, PetroChina is well positioned to capitalize on these favorable trends.
Also, China has implemented fuel price reforms, which has allowed PetroChina to sell its petroleum products close to international prices. The reforms have already helped the company to significantly improve its Refining & Chemicals business.
However, with crude prices tumbling 50% since June, PetroChina’s upstream division has been able to extract less value for their products. This has pressured the group’s profit margins.
Moreover, despite the price hikes, PetroChina’s gas imports continue to come at a loss as it has to sell the same at controlled domestic prices. This has pressured the company’s profitability. A weak chemical market is another headwind for the Beijing-headquartered conglomerate.
Earnings Whispers?
Our proven model does not conclusively show that PetroChina 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.
Zacks ESP: PetroChina’s earnings ESP is 0.00%, as the Most Accurate estimate and the Zacks Consensus Estimate both stand at 22 cents.
Zacks Rank #3 (Hold): PetroChina carries a Zacks Rank #3 (Hold). Though a favorable Zacks Rank increases the predictive power of ESP, the company’s ESP of 0.00% 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 PetroChina, 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:
Marathon Petroleum Corp. MPC has an Earnings ESP of +1.77% and a Zacks Rank #1 (Strong Buy). The company is slated to release earnings on Apr 30.
Suncor Energy Inc. SU has an Earnings ESP of +400.00% and a Zacks Rank #2 (Buy). The company is slated to release earnings on Apr 29.
Cenovus Energy Inc. CVE has an Earnings ESP of +58.82% and a Zacks Rank #2. The company is slated to release earnings on Apr 29.
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