Oklahoma-based Chesapeake Corporation CHK is expected to report second-quarter 2015 earnings on Aug 5, before the opening bell.
The company’s earnings history is a mixed bag. Chesapeake surpassed the Zacks Consensus Estimate in two of the trailing four quarters while missed in the other two. In the last reported quarter, the company delivered a positive earnings surprise of 450.00%. Let’s see how things are shaping up for this announcement.
Factors Influencing This Past Quarter
Chesapeake Energy boasts a leading position among the top unconventional liquids-rich plays and actively manages its asset portfolio through a combination of acquisitions and disposals. Its inventory of unconventional resource potential is probably bigger than any other domestic independent.
However, crude price was low during the entire second quarter owing to a supply glut amid lackluster global demand. At the same time, low oil prices resulted in declining production. How the weakness in oil price influences the quarter’s earnings will be interesting to see.
Overall, the company’s activities during the April–June period were inadequate to win analysts’ confidence. The Zacks Consensus Estimate for the second quarter widened to a loss of 12 cents from a loss of 13 cents per share over the last 30 days.
Earnings Whispers
Our proven model does not conclusively show that Chesapeake is likely to beat estimates this quarter because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for that to happen. It is not the case here, as you will see below.
Zacks ESP: Chesapeake has an Earnings ESP of -8.33%. This is because the Most Accurate estimate is at a loss of 13 cents while the Zacks Consensus Estimate is pegged at a narrower loss of 12 cents.
Zacks Rank: Chesapeake carries a Zacks Rank #3 (Hold) which increases the predictive power. However, we need to have a positive ESP to be confident about an earnings surprise.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some companies in the basic materials sector which have the right combination of elements to post an earnings beat this quarter:
CONE Midstream Partners L.P. CNNX has an Earnings ESP of +12.50% and a Zacks Rank #2 (Buy). The partnership is slated to release earnings on Aug 5.
Calumet Specialty Products Partners L.P. CLMT has Earnings ESP of +15.79% and a Zacks Rank #2. The partnership is likely to release earnings on Aug 5.
Seadrill Partners LLC SDLP has an Earnings ESP of +12.28% and a Zacks Rank #2. The partnership is slated to release earnings on Aug 26.
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