Independent oil and gas company, Chesapeake Energy Corporation (CHK) is set to release third-quarter 2014 financial numbers before the opening bell on Nov 5. Let's see how things are shaping up prior to the announcement.
In the last quarter, the company's earnings of 36 cents per share fell year over year from 51 cents and came below the Zacks Consensus Estimate of 44 cents. The results were affected by lower price realizations.
Factors Influencing This Past Quarter
Chesapeake, the second largest U.S. natural gas producer after ExxonMobil Corp. (XOM), is gradually shifting its focus to more liquid-rich plays. The company earlier raised its 2014 total production growth outlook on an adjusted basis to 9–12% from 8–10%, to reflect higher-than-expected natural gas liquids volumes in the third quarter. In the third quarter, the company is likely to have connected approximately 35% more wells to sales than the preceding two quarters of the current fiscal. Any increase in production can be attributed to better production trends and an increase in well connections.
Chesapeake remains one of the industry’s most active players in managing asset portfolio through a combination of acquisitions and disposals. With the biggest inventory of unconventional resource potential than probably any other domestic independent, Chesapeake boasts a leading position among the top unconventional liquids-rich plays, comprising Eagle Ford, Utica, Granite Wash, Cleveland, Tonkawa, Mississippi Lime and Niobrara and in the Marcellus, Haynesville/Bossier and Barnett natural gas shale plays.
However, the downtrend in natural gas prices is compelling the company to deploy the majority of its capex to drill liquids-rich plays. It remains to be seen whether the earnings of the quarter to be reported would feel an adverse effect from this shift in focus.
Earnings Whispers
Our proven model does not conclusively show that Chesapeake is likely to beat earnings this quarter because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for that to happen. It is not the case here, as you will see below.
Zacks ESP: Chesapeake has an Earnings ESP of -3.13%. This is because the Most Accurate estimate stands at 31 cents while the Zacks Consensus Estimate is pegged higher at 32 cents.
Zacks Rank: Chesapeake carries a Zacks Rank #5 (Strong Sell).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
Energy stocks that have both a positive ESP and a favorable Zacks Rank include:
Murphy USA Inc (MUSA), with Earnings ESP of +20.51% and a Zacks Rank #1 (Strong Buy).
Cobalt International Energy Inc. (CIE), with Earnings ESP of +11.11% and a Zacks Rank #1.
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