We expect domestic oil and gas explorer Energy XXI Ltd. EXXI to beat expectations when it reports first-quarter fiscal 2016 results on Wednesday, Nov 4.
Affected by commodity headwinds, the Houston, TX-based upstream operator reported a massive negative earnings surprise of 386.61% in the preceding three-month period. In fact, the company lagged the Zacks Consensus Estimate in each of the past four quarters, with an average miss of 163.94%.
Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Energy XXI is likely to beat earnings in the to-be-reported quarter because it has the right combination of two key ingredients.
Zacks ESP: Earnings ESP for this oil and gas finder stands at +9.09%. This is because the Most Accurate estimate stands at a loss of $1.20, whereas the Zacks Consensus Estimate is pegged wider at a loss of $1.32. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Energy XXI carries a Zacks Rank #3 (Hold) which, when combined with a positive ESP, makes us confident of an earnings beat.
Note that stocks with Zacks Ranks #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings. On the other hand, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.
What is Driving the Better-Than-Expected Earnings?
As is the case with other oil and gas producers, Energy XXI’s revenues/earnings have borne the brunt of the freefall in realized prices over the past 15 months. However, the company has come up with certain initiatives to overcome the industry-wide slump.
With an aggressive cost reduction program, Energy XXI is looking to shore up its margins even in this weak oil and gas pricing environment. As part of this strategy, the company has embarked on a policy to minimize service and lease operating costs.
Importantly, even after pruning its cost structure, Energy XXI has been able to maintain stable production numbers. We expect the same for the to-be-reported-quarter as well.
Other Stocks to Consider
Energy XXI is not the only company looking up this earnings season. Here are some other firms from the energy space which, according to our model, also have the right combination of elements to post an earnings beat this quarter.
Natural Gas Services Group Inc. NGS has an Earnings ESP of +11.11% and a Zacks Rank #1. The company is anticipated to release earnings on Nov 5.
Seadrill Partners LLC SDLP has an Earnings ESP of +12.00% and a Zacks Rank #1. The partnership is expected to release earnings on Nov 25.
Swift Energy Co. SFY has an Earnings ESP of +11.11% and a Zacks Rank #2. The company is likely to release earnings on Nov 5.
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