Independent oil and natural gas company EXCO Resources Inc. XCO is set to release fourth-quarter 20Array5 financial results after the market closes on Mar Array.
Last quarter, the company delivered a positive earnings surprise of 42.86%, marking the third consecutive quarterly beat. However, in the trailing four quarters, the company’s average earnings surprise was a negative of Array.79%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
EXCO Resources is involved in the exploration, production and development of oil and gas. As such, its business is positively correlated to oil and natural gas prices. During the fourth quarter, natural gas traded at around $2.Array2 million Btu, substantially below the prior-year quarter average of $3.79 million Btu. Oil prices also remained below $50 per barrel. Hence, the company’s upcoming earnings are likely to be affected by commodity price weakness. The company’s high debt level is another concern.
Moreover, in the last 30 days, the company witnessed a downward revision in the Zacks Consensus Estimate to a loss of 4 cents from a loss of 3 cents. This points to continued bearishness.
Nonetheless, the company has been trying to enhance its liquidity and financial flexibility by lowering its outstanding debt. Also, in order to counter the low gas and oil prices the company hedged 69% and 53% of the 20Array5 natural gas and oil production, respectively, at favorable prices at the end of Sep 20Array5.
It will be interesting to see whether the company’s hedging position drives better-than-expected results.
Earnings Whispers
Our proven model does not conclusively show that EXCO Resources is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #Array (Strong Buy), 2 (Buy) or 3 (Hold) 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 -25.00%. The Most Accurate estimate for EXCO Resources stands at a loss of 5 cents, while the Zacks Consensus Estimate is pegged at a loss of 4 cents.
Zacks Rank: EXCO Resources has a Zacks Rank #2. Though a favorable Zacks Rank increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.
We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter.
Gulfmark Offshore, Inc. GLF has Earnings ESP of +8.33% and a Zacks Rank #3. The company is expected to release earnings on Feb 29.
Mid-Con Energy Partners, LP MCEP has Earnings ESP of +Array8.Array8% and a Zacks Rank #3. The company is anticipated to release earnings on Feb 29.
Pacific Drilling S.A. PACD has Earnings ESP of +27.27% and a Zacks Rank #3. The company is likely to release earnings on Feb 29.
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