Brazilian state-run energy giant Petroleo Brasileiro S.A. or Petrobras PBR is expected to release second-quarter 2015 results on Thursday, Aug 6.
Petrobras reported mixed earnings numbers in the trailing four quarters – two beats and two misses – with an average positive surprise of 87.50%. The company surpassed estimates in the last reported quarter on the strength of its downstream segment.
Let’s see how things are shaping up for this announcement.
Factors Likely to Influence this Quarter
Petrobras generates most of its earnings from upstream operations. As such, its second-quarter financials are likely to remain challenged in the face of the persistent weakness in commodity prices.
However, the company continues to deliver production growth from both domestic and international operations, which should somewhat offset the drop in oil and gas prices.
Additionally, being an integrated company, Petrobras is expected to take advantage of the current environment through its downstream operations. Last quarter, this unit attained profitability for the first time since 2010 and was the primary contributor to the earnings beat.
Petrobras’ reduced capital spending and divestment plans should further lend support to financials. Also, the majority of brokerage firms have increased their estimates for the firm, an indication of further bullishness ahead.
Earnings Whispers
Our proven model does not conclusively show that Petrobras is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00% for Petrobras. This is because both the Most Accurate estimate and Zacks Consensus Estimate are pegged at 23 cents.
Zacks Rank: Petrobras has a Zacks Rank #3 (Hold).
We caution investors against Sell-rated stocks (Zacks Ranks #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies from the energy sector which, according to our model, have the right combination of elements to post an earnings beat this quarter.
Seadrill Partners LLC SDLP with an Earnings ESP of +12.28% and a Zacks Rank #1 (Strong Buy). The company is slated to release earnings on Aug 26.
Calumet Specialty Products Partners LP CLMT with an Earnings ESP of +15.79% and a Zacks Rank #2 (Buy). The company is expected to release earnings on Aug 5.
EV Energy Partners LP EVEP with an Earnings ESP of +12.50% and a Zacks Rank #2. The company is expected to release earnings on Aug 10.
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