Talos Energy Inc TALO has lost 31.3% in the past year, underperforming the oil & energy sector’s 23% decline. Moreover, the stock, carrying a Zacks Rank #5 (Strong Sell), has been seeing downward estimate revision for third and fourth quarter as well as 2019 earnings by all analysts in the past 30 days.
Downward Estimate Revision
The Zacks Consensus Estimate for the company’s 2019 earnings per share of $2.30 has been revised downward from $2.94 in the past 30 days.
Moreover, for 2020, the estimate for earnings has been lowered to $2.08 from $3.22.
Reasons for the Downgrade
Oil price has declined as Saudi Arabia reportedly returned to normal crude production much ahead of market’s expectations following the strike on Sep 14. The unexpected rise in U.S. oil inventories also led to the commodity’s fall. Last week, crude oil inventories in the United States increased by 2.4 million barrels, per the Energy Information Administration. This was an unanticipated move as analysts were expecting oil stockpiles to decline 249,000 barrels, per CNBC.
Being an independent exploration and production player, with crude accounting for almost 75% of total production volume, the weak pricing environment of the commodity is hurting the upstream energy player’s bottom line. Notably, the West Texas Intermediate (WTI) oil is being traded at $56.63 a barrel.
Moreover, Talos Energy’s balance sheet is more levered than the sector it belongs to. The company’s debt-to-capitalization ratio of 42% is higher than the sector’s 34.8%. The rising direct lease operating expenses is also hurting the company’s profits. In the first half of 2019, Talos Energy reported that its direct lease operating expenses increased almost 34% year over year.
Stocks to Consider
Better-ranked players in the energy space include National Oilwell Varco Inc. NOV, Dril-Quip, Inc. DRQ and Delek Logistics Partners LP DKL. All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
National Oilwell is likely to see earnings growth of 75% in 2019.
Dril-Quip beat the Zacks Consensus Estimate in three of the trailing four quarters, the average earnings surprise being 49%.
Delek Logistics is likely to see earnings growth of 4.9% in 2019.
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