Chevron (CVX) Gears Up for Q4 Earnings: What’s in the Offing?

Chevron Corporation CVX is set to release fourth-quarter 2017 results before the opening bell on Feb 2.

In the preceding three-month period, San Ramon, CA-based supermajor reported better-than-expected results, courtesy of rebounding oil prices, production gains and robust refining profits.

Chevron has a good history when it comes to beating earnings estimates. The supermajor surpassed earnings estimates in three of the last four quarters, with an average beat of 1.77%.

Which Way are Estimates Treading?

Let’s look at the estimate revisions in order to get a clear picture of what analysts are thinking about the company before earnings release.

The Zacks Consensus Estimate of $1.31 for the current-quarter earnings has remained stable over the last seven days. It reflects a surge of about 495.4% from the year-ago quarter.

Further, analysts polled by Zacks expect revenues of $38,738 million for the quarter, up 23% from the prior-year quarter.

Factors at Play

The upstream segment of Chevron is expected to realize benefits of higher production volumes on the back of major capital projects including Gorgon and core developments in Gulf of Mexico and Permian Basin. The current Zacks Consensus Estimate for the total quarterly output is 2,803 thousand oil-equivalent barrels per day (MBOE/d) compared with $2,717 MBOE/d in the prior quarter. The segment is also likely to benefit from higher price realizations. Prices of oil at the end of the fourth quarter were $60.46 per barrel, up about 19.6% sequentially amid tightening supplies, improving demand outlook and OPEC-deal extension talks. As such, the income from the upstream segment for the current quarter is estimated to be $1,587 million compared with the $489 million in the prior quarter.

However, the downstream segment is likely to bear the brunt of weaker margins and lower refined product sales. The Zacks Consensus Estimate for total refined product sales is estimated to decline to $2,668 million in the quarter under review compared with $2,781 million in the prior quarter. As such, according to Zacks Consensus Estimate, the segmental income is expected to deteriorate to $929 million versus the $1,814 million recorded in the previous quarter.

Earnings Whispers

Our proven model does not conclusively show that Chevron is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -2.95%. This is because the Most Accurate estimate is $1.29, while the Zacks Consensus Estimate is pegged at $1.31. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Chevron presently carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, a negative ESP makes the surprise prediction difficult. Conversely, we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Share Performance

During the quarter, shares of Chevron — whose peers include Exxon Mobil Corporation XOM, Royal Dutch Shell RDS.A and BP plc among others — moved up 6.5% compared with the industry’s 6.6% upside.

Energy Stock with Favorable Combination

Though an earnings beat looks uncertain for Chevron, another stock from the same industry — TOTAL S.A. TOT — has the right combination of elements to post an earnings beat this quarter.

TOTAL has an Earnings ESP of +11.32% and a Zacks Rank #2. The company is expected to release fourth-quarter earnings results on Feb 8. You can see the complete list of today’s Zacks #1 Rank stocks here.

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