Leading oil and gas drilling contractor Diamond Offshore Drilling Inc. DO is expected to report first-quarter 2015 earnings on Monday, May 4, before the opening bell. Last quarter, the company delivered a positive earnings surprise of 9.09%. We also note that Diamond Offshore has outperformed the Zacks Consensus Estimate in the preceding four quarters with an average positive surprise of 21.59%.
Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Diamond Offshore is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +2.38%. This is a meaningful indicator of a likely positive earnings surprise.
Zacks Rank: Diamond Offshore carries a Zacks Rank #3 (Hold) which, when combined with +2.38% ESP, makes us confident about an earnings beat.
Note that stocks with Zacks Ranks #1, 2 or 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
What's Driving the Better-Than-Expected Earnings?
Diamond Offshore in particular, and offshore drillers in general, might have witnessed idled rigs, shrinking dayrates and lack of new contracts following plummeting crude oil prices. However, unlike the other drillers, Diamond Offshore was able to uphold investor confidence. This is attributable to the company’s focus on core businesses, improving cost structure and reduction of debt.
Moreover, the fundamentals of Diamond Offshore Drilling seem strong with significant free cash flow potential and a clean balance sheet. This not only points to strong results in the quarter to be reported but also increases the possibility of further share buyback or special dividends in the years to come.
Other Stocks to Consider
Other stocks in the energy sector that have both a positive Earnings ESP and a favorable Zacks Rank are:
Callon Petroleum Co. CPE with an Earnings ESP of +50.00% and a Zacks Rank #2 (Buy). The company is expected to release earnings on May 6.
TC PipeLines LP TCP with an Earnings ESP of +10.67% and a Zacks Rank #2. The company is expected to release earnings on May 7.
Western Refining Inc. WNR with an Earnings ESP of +6.86% and a Zacks Rank #2. The company is slated to release earnings on May 5.
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