We expect upstream energy firm Apache Corporation APA to beat expectations when it reports second-quarter 2015 results before the opening bell on Aug 6. Last quarter, the company delivered a positive earnings surprise of 40.32%. We note that Apache has outperformed the Zacks Consensus Estimate in the preceding four quarters, with an average positive surprise of 20.28%.
Let’s see how things are shaping up for this announcement.
What is Driving the Better-Than-Expected Earnings?
Apache has a large, geographically diversified reserve base and a multi-year trend in reserve replacement and production growth.
Moreover, the company is improving its cash balances by divesting non-core assets amid low commodity prices. This should also find a reflection in the second-quarter performance.
Additionally, although the oil price was low during second-quarter 2015, crude price rebounded from the prior quarter. To interpret it by data, we found that West Texas Intermediate (WTI) crude traded in $50–$60 per barrel range during the April to June quarter, higher than the previous quarter when crude was mostly below the $50 per barrel mark.
Hence, the slight recovery in crude price might help Apache to beat our estimate as the company produces almost 60% crude oil/ liquid hydrocarbons.
Why a Likely Positive Surprise?
Our proven model shows that Apache is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +15.63%. This is meaningful indicator of a likely positive earnings surprise for shares.
Zacks Rank: Apache carries a Zacks Rank #3 (Hold) which, when combined with +15.63% ESP, makes us confident about an earnings beat.
Note that stocks with Zacks Ranks #1, 2 or 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
Other Stocks to Consider
Other stocks in the energy sector that have both a positive Earnings ESP and a favorable Zacks Rank are:
CONE Midstream Partners LP CNNX with an Earnings ESP of +12.50% and a Zacks Rank #1 (Strong Buy). The partnership is slated to release earnings on Aug 5.
Seadrill Partners LLC SDLP with an Earnings ESP of +12.28% and a Zacks Rank #1. The partnership is slated to release earnings on Aug 26.
Calumet Specialty Products Partners LP CLMT with an Earnings ESP of +15.79% and a Zacks Rank #2 (Buy). The partnership is likely to release earnings on Aug 5.
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