Offshore drilling contractor,Hercules Offshore Inc. (HERO) is set to release third-quarter 2014 financial results before the opening bell on Oct 23.
Last quarter, the company had delivered negative 500% earnings surprise. Let’s see how things are shaping up for this announcement.
Factors Likely to Influence this Quarter
The business of any offshore drilling contractor is highly correlated to oil and gas prices. If the pricing environment of the commodities remains weak, there will be decreased exploration and production activities which in turn will lead to lower drilling demand.
As we see, during most of the third quarter, crude traded significantly below the psychological threshold of $100 per barrel. The pathetic pricing scenario most likely provided fewer incentives for the upstream companies to explore and produce oil. This trend is expected to be translated into decreased drilling demand.
Natural gas pricing environment was also weak during the entire third quarter. From a peak of about $13.5 per million British thermal units (MMBtu) in 2008, natural gas traded below $4 per MMBtu throughout the period, representing a decline of more than 70% over six years. This might have resulted in weak drilling demand.
Earnings Whispers
Our proven model does not conclusively show that Hercules Offshore 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 represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. This leads to an ESP of -33.33% for Hercules Offshore as the Most Accurate estimate stands at a loss of 8 cents while the Zacks Consensus Estimate is pegged higher at a loss of 6 cents.
Zacks Rank: Hercules Offshore has a Zacks Rank #4 (Sell).
We caution investors against the stock going into the earnings announcement, as an Earnings ESP of -33.33% combined with a Zacks Rank #4 lowers the possibility of an earnings surprise.
Other Stocks to Consider
Here are some other companies to consider as our model shows these have the right combination of elements to post an earnings beat this quarter.
Delek Logistics Partners LP (DKL) has an Earnings ESP of +5.56% and holds a Zacks Rank #1 (Strong Buy).
EQT Midstream Partners LP (EQM) has an Earnings ESP of +9.41% and holds a Zacks Rank #2 (Buy).
Boardwalk Pipeline Partners LP (BWP) has an Earnings ESP of +9.09% and holds a Zacks Rank #2.
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