Will DryShips (DRYS) Surprise Earnings Estimates in Q4?

DryShips Inc. (DRYS) is set to release fourth-quarter 2014 results after the market closes on Feb 25.

In the last quarter, the company delivered a positive 125% earnings surprise. However, the company delivered negative earnings surprises in two of the last four quarters, with an average miss of 73.75%.

Let’s see how things are shaping up for this announcement.

Factors to be Considered

DryShips is gradually transforming itself into an ultra-deepwater drilling company rather than continuing as a simple drybulk cargo operator. The acquisition of Ocean Rig turned out to be a major positive for the company. Recently, Ocean Rig signed a 6-year definitive agreement with Total E&P Angola Block 32 to drill the offshore areas of Angola. The contract is expected to commence in the third quarter of 2015 and has an estimated backlog of $1.3 billion. Moreover, reduced oil prices and improving spot fleet capacity days are likely to act as tailwinds for DryShips, moving ahead.

However, the drybulk shipping industry is cyclical in nature with volatility in charter hire rates and profitability. Thus, future demand and supply of drybulk commodities are very difficult to predict. Several economic and geopolitical events can significantly affect demand, supply, price, and transportation of drybulk commodities within a short span of time. As a result, drybulk shipping rates are also likely to become volatile. Further, mounting debts coupled with fluctuating oil prices may act as headwinds for the company going forward.

Earnings Whispers

Our proven model does not conclusively show that DryShips is likely to beat the Zacks Consensus Estimate this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or at least 3 for this to happen. That is not the case here, as you will see below:

Zacks ESP: The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. Thus, the ESP for the company currently stands at -20.00% as the Most Accurate estimate is pegged at 4 cents while the Zacks Consensus Estimate is higher at 5 cents.

Zacks Rank: DryShips’ Zacks Rank #1 (Strong Buy) increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings beat.

Please note that the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

Stocks to Consider

Here are some companies to consider as our model shows they have the right combination of elements to post an earnings beat this quarter.

Navios Maritime Midstream Partners LP (NAP) with an Earnings ESP of +11.77% and a Zacks Rank #2 (Buy).

Townsquare Media, Inc. (TSQ) with an Earnings ESP of +9.52% and a Zacks Rank #3 (Hold).

Pattern Energy Group Inc. (PEGI) with an Earnings ESP of +420% and a Zacks Rank #3.