Concho Resources Inc. CXO, a more than $22-billion market cap energy company, is set to release second-quarter 2018 financial results after the closing bell on Aug 1.
In the last reported quarter, the company delivered an impressive positive earnings surprise of 23.46% on the back of higher commodity price realizations and robust production growth. As far as earnings beat is concerned, the company surpassed estimates in each of the last four quarters, delivering an average positive surprise of 40.24%.
Let’s see how things are shaping up for this announcement.
Concho Resources Inc. Price and EPS Surprise
Concho Resources Inc. Price and EPS Surprise | Concho Resources Inc. Quote
Which Way Are Estimates Trending?
Estimate revisions help to get a clear picture of analysts’ opinion on the stock before the earnings release.
The Zacks Consensus Estimate for the second quarter moved up by 2 cents to 92 cents per share over the last 30 days. Further, the current estimate also reflects year-over-year growth of 76.9%.
On a further encouraging note, the consensus estimate for revenues is $861 million for the quarter, indicating a rise of more than 51.8% from the year-ago quarter.
Let’s delve deeper to find out what’s going in favor of the stock.
Factors at Play
Concho’s core operations are focused on the prolific Permian basin, providing this upstream player with an enviable acreage of low-risk top-tier assets and a multiyear drilling inventory. Moreover, the company added various multi-well projects across its portfolio in 2017, which will drive its ambitious growth plans.
Concho – currently executing a strategy to remain within cash flow – expects to increase its output at a compounded annual growth rate (CAGR) of 20% over the 2017-2020 timeframe. Lifting its production outlook for 2018, the company expects its total output to grow 18-20%, with crude oil growth about 20%.
The Zacks Consensus Estimate for daily production of this Midland, TX-based upstream operator is currently pegged at 235.7 thousand barrels of oil equivalent (MBOE), higher than 184.4 MBOE reported in the year-ago quarter. Natural gas production is estimated at 516.5 million cubic feet per day (Mcf/d), higher than the year-ago quarter’s level of 428.8 Mcf/d. Daily oil output is forecast to be 149.7 thousand barrels per day (bbls/d), higher than 113.2 thousand bbls/d recorded in the second quarter of 2017.
Along with higher production volumes, higher realized oil prices will also aid the company. The oil benchmark in the United States attained its highest settlement since November 2014. The Zacks Consensus Estimate indicates an increase in realized prices on a year-over-year basis, which will boost Concho’s top line. The Zacks Consensus Estimate for average oil price (excluding hedging) is $57 a barrel, up 27.3% from the year-ago quarter.
However, natural gas prices (excluding hedging) are expected to decline to $2.69 per thousand cubic feet from $2.71 level a year-ago. This might limit earnings to some extent.
What Does Our Model Say?
Our proven model does not conclusively show that Concho will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat consensus estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
That is not the case here as you will see below.
Earnings ESP: Its Earnings ESP is 0.00%. This is because both the Zacks Consensus Estimate and the Most Accurate Estimate are pegged at 92 cents.
Zacks Rank: Concho is #3 Ranked stock. The combination of Concho’s Zacks Rank #3 and Earnings ESP of 0.00% makes surprise prediction difficult.
We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
While earnings beat looks uncertain for Concho, here are some firms from the energy space you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:
Murphy Oil Corporation MUR has an Earnings ESP of +5.99% and a Zacks Rank #2. The company is anticipated to release second-quarter earnings on Aug 8. You can see the complete list of today’s Zacks #1 Rank stocks here.
Jones Energy, Inc. JONE has an Earnings ESP of +2.47% and a Zacks Rank #3. The firm is expected to release second-quarter earnings on Aug 2.
Canadian Natural Resources Limited CNQ has an Earnings ESP of +1.75% and a Zacks Rank #1. The firm is expected to release second-quarter earnings on Aug 2.
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