Independent oil and gas exploration company Cabot Oil & Gas Corporation (COG) is set to release third-quarter 2014 results before the opening bell on Oct 24.
In the April-June quarter, Cabot had delivered a positive 8.00% earnings surprise owing to significant higher production – especially from Marcellus and Eagle Ford shales. Let’s see how things are shaping up for this announcement.
Factors to Consider this Quarter
As Cabot’s total production comprises mostly of natural gas, the company’s operations are highly exposed to gas price fluctuation. Let’s have a look at the natural gas pricing environment during the third quarter.
Due to abundant supply of natural gas – primarily owing to shale revolution – the pricing scenario of natural gas was not healthy during the July-September period. From a peak of about $13.50 per million British thermal units (MMBtu) in 2008, natural gas traded below $4 per MMBtu during the third quarter.
Hence we believe that an unhealthy gas pricing scenario might hamper the company’s to-be reported earnings.
Earnings Whispers?
Our proven model does not conclusively show that Cabotis likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESPand a Zacks Rank of #1, 2 or 3 for this to happen. Unfortunately, this is not the case here, as elaborated below.
Negative Zacks ESP: This is because the Most Accurate estimate stands at 21 cents per share, while the Zacks Consensus is higher at 23 cents. This results in an ESP of -8.70%.
Zacks Rank: Cabot’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings beat.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some energy firms you may want to consider as our model shows that 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 #3.
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