Chesapeake Corporation CHK is expected to report third-quarter 2015 financial results on Nov 4, before the opening bell.
The OK-based company’s earnings history is a mixed bag. Chesapeake surpassed the Zacks Consensus Estimate in three of the trailing four quarters. In the last reported quarter, the company delivered a positive earnings surprise of 8.33%. 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. However, oil price during the Jul–Sep 2015 quarter hovered mostly between $45 and $55 per barrel. This was considerably below the prior-year quarter level, when crude was trading around the $100 per barrel mark.
With the weakness in oil prices, the top energy companies have cut spending (in particular on the costly drilling projects) to make up for the lower profit margins. At the same time, low oil prices in the quarter 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 July–September period were adequate to win analysts’ confidence. The Zacks Consensus Estimate for the third quarter bettered to a loss of 13 cents from a loss of 19 cents per share over the last 30 days.
Earnings Whispers
Our proven model does not conclusively show that Chesapeake Energy is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: Chesapeake Energy has an Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 13 cents.
Zacks Rank: Chesapeake Energy carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, we also need a positive ESP to be confident of a likely beat.
We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the announcement of the results, 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:
Exterran Partners, L.P. EXLP with Earnings ESP of +8.00% and a Zacks Rank #3. The company is slated to release earnings results on Nov 3.
Callon Petroleum Company CPE has Earnings ESP of +66.67% and a Zacks Rank #2 (Buy). It will be reporting results on Nov 4.
PennTex Midstream Partners, LP PTXP has Earnings ESP of +114.29% and a Zacks Rank #3. The company is scheduled to release results on Nov 6.
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