U.S. energy firm Apache Corp. APA is set to release first-quarter 2015 results before the opening bell on Thursday, May 7.
Last quarter, the company delivered a positive earnings surprise of 40.79%. We note that Apache reported an average positive surprise of 12.84% in the preceding four quarters. Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Apache 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 +6.45%. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Apache carries a Zacks Rank #3 (Hold) which, when combined with a positive ESP, makes us confident about a positive earnings beat.
Note that stocks with a Zacks Rank #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 is Driving the Better-Than-Expected Earnings?
Apache has a large, geographically diversified reserve base and a multi-year trend in reserve replacement and production growth.
Despite the weak crude and natural gas pricing scenario, the company expects to produce slightly more this year than in 2014 – adjusting last-year asset sales and 2015 expected property divestments. The portion of the increased output might get reflected in first-quarter results.
Moreover, the company is improving its cash balances by divesting non-core assets amid low commodity prices. This should also find a reflection in the first-quarter performance.
Other Stocks to Consider
Other stocks in the energy sector that have both a positive Earnings ESP and a favorable Zacks Rank are:
Midstream, L.P. RRMS has an Earnings ESP of +13.73% and has a Zacks Rank #2 (Buy). The company is expected to release earnings on May 7.
TC PipeLines, LP TCP has an Earnings ESP of +10.67% and holds a Zacks Rank #2. The company is expected to release earnings on May 7.
Callon Petroleum Company CPE has an Earnings ESP of +50.00% and holds a Zacks Rank #3 (Hold). The company is expected to release earnings on May 6.
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