Leading oil and gas drilling contractor, Diamond Offshore Drilling Inc. (DO), is expected to report fourth-quarter 2014 earnings on Monday, Feb 9, before the opening bell. Let’s see how things are shaping up prior to the announcement.
In the last quarter, the company’s earnings of 96 cents per share surpassed the Zacks Consensus Estimate of 77 cents. The outperformance was mainly backed by improved dayrates from the Ultra-Deepwater floaters. However, the quarter's results decreased 21.3% from the year-earlier earnings of $1.22 per share.
Factors Influencing the Fourth Quarter
Diamond Offshore in particular and offshore drillers in general have in the recent past witnessed idled rigs, shrinking dayrates and lack of new contracts. The offshore drilling industry faced intense competition with multiple firms chasing a single contract. On top of that, there was an oversupply of offshore drilling rigs that lowered the day rate.
Moreover, in the October-December period, crude prices fell steadily owing to high crude stockpiles, as imports increased and refiners scaled down their utilization rates. The price of West Texas Intermediate (WTI) crude is now hovering around $50 per barrel and is expected to remain so in the near term. The southward march in crude prices provided little intensive to oil exploration and production companies to hire offshore drilling rigs. This amplified the rig oversupply concern.
Earnings Whispers?
Our proven model does not conclusively show that Diamond Offshore is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Diamond Offshore has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 66 cents per share.
Zacks Rank: Diamond Offshore’s Zacks Rank #4 (Sell) when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
While earnings beat looks uncertain for Diamond Offshore, here are some firms you may want to consider on the basis of our model, which shows that these have the right combination of elements to post an earnings beat:
LRR Energy L.P (LRE) with an Earnings ESP of +3.13% and a Zacks Rank #2 (Buy).
Valero Energy Partners L.P. (VLP) with an Earnings ESP of +3.57% and a Zacks Rank #2.
Tesoro Corp. (TSO) with an Earnings ESP of +1.35% and a Zacks Rank #2.
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