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Oil Exploration Earnings Preview for Feb 23: APA, PE & More

We have reached the final stretch of the Q4 earnings season, with results on board from 411 S&P 500 members that combined account for more than 88% of the index’s total market capitalization. And with 49 S&P 500 members coming up with results this week, one would have seen Q4 numbers from 92% of the index’s total membership by the end of Friday.

According to the latest Earnings Preview, overall earnings for the companies that have already reported are up 8% from the same period last year on 4.9% higher revenues, with 68.9% positive earnings surprises and 54.7% beating revenue estimates.

Energy Earnings Finally on the Up

Following 8 back-to-back quarters of earnings declines, analysts said that the sector was likely to get better in the fourth quarter and clock its first positive earnings growth after two years. With estimate revisions going up following OPEC’s Algeria grandstand, the Oil/Energy sector’s earnings were expected to improve 8.8% from the fourth quarter 2015 levels.

True to the predictions, the sector has come out swinging. For the 69.4% sector components on the S&P 500 index that have reported Q4 results, total earnings are up 14.7% on 3.1% higher revenues. Around 68% of the companies have been successful in beating earnings and revenue estimates.

The Oil/Energy sector’s positive growth largely reflects better-than-expected quarterly profit from bellwether ExxonMobil Corp. XOM, which more than offset smaller rival Chevron Corp.’s CVX disappointing Q4 numbers.

Let's take a look at how oil and gas prices behaved during the fourth quarter.

Q4: Rebounding Oil & Natural Gas Prices

The OPEC deal and extreme weather conditions engineered a hefty rise in oil and gas prices during the fourth quarter.

A historic OPEC production cut agreement, together with help from non-OPEC producers saw oil prices end the year at $53.72 a barrel - representing a gain of 11.4% sequentially and 45% for the year.

Meanwhile, natural gas embarked on its own upward journey, with futures jumping around 25% just in the fourth quarter. Ending the year at $3.724 per million Btu (MMBtu) – up 59% from 2015 – the heating fuel was buoyed by a cold snap that translated into strong demand.

Stocks to Watch for Earnings on Feb 23

Let’s see what’s in store for five energy companies – all engaged in exploration and production activities – that are lined up for earnings release on Feb 23.

One of North America's leading independent energy companies engaged in the exploration, development and production of natural gas, crude oil and natural gas liquids, Apache Corp. APA is expected to report fourth-quarter 2016 results before the opening bell. 

In the third quarter of 2016, this Houston, TX-headquartered upstream player beat estimates handily, helped by its successful cost reduction efforts.

Coming to earnings surprise history, the company has a good record: its been ahead of estimates in three of the last four quarters.

However, an earnings beat looks unlikely for Apache this time around. This is because, as per our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat earnings. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

For the quarter to be reported, Apache has an earnings ESP of -33.33%, while it carries a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, a negative ESP makes surprise prediction difficult. (Read more: Apache to Post Q4 Earnings: What to Expect?)

Simultaneously, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Apache Corporation Price and EPS Surprise


Apache Corporation Price and EPS Surprise | Apache Corporation Quote

We then have Parsley Energy Inc. PE coming out with fourth-quarter 2016 results after the closing bell. Coming to earnings surprise history, the Austin, TX-based company – which is a focused on the Midland Basin – has an excellent track of having outperformed estimates in each of the last four quarters.

But our model does not indicate that Parsley Energy is likely to beat on earnings this time around, as it has a Zacks Rank #3 and an Earnings ESP of 0.00%.

Parsley Energy, Inc. Price and EPS Surprise


Parsley Energy, Inc. Price and EPS Surprise | Parsley Energy, Inc. Quote

Crescent Point Energy Corp. CPG, a Calgary, Alberta-based oil and gas producer is coming out with fourth-quarter numbers prior to the opening of markets.

Holding a dominant position in the southwest and southeast Saskatchewan and Utah, Crescent Point Energy has gone past estimates in all of the last four quarters at an impressive average rate of 1,041.05%.

However, the company is unlikely to keep the streak alive in the to-be-reported quarter. This is because the company is a Zacks Rank #3 stock that has an Earnings ESP of 0.00%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Oklahoma City, OK, Chesapeake Energy Corp. CHK will come up with Oct-Dec 2016 result prior to the opening bell. Coming to earnings surprise history, the developer of onshore unconventional oil and gas reserves has a good track of having beaten estimates in three of the last four quarters.

However, with an earnings ESP of -42.86% and a Zacks Rank #3, our proven model shows that an earnings beat is uncertain for Chesapeake this time around. (Read more: Chesapeake Energy: What's in Store this Earnings Season?)

Lastly, there is Spring, TX-based domestic oil and gas explorer Southwestern Energy Co. SWN coming out with fourth-quarter numbers following the market close.

As far as earnings surprises are concerned, the company – with focus on the Arkansas side of the Arkoma Basin, Oklahoma, Texas and Pennsylvania – is on a firm footing, having outperformed the Zacks Consensus Estimate thrice in the last four reports.

Powered with the right combination of the two key ingredients – an Earnings ESP of +8.33% and Zacks Rank #3 – our proven model shows that an earnings beat is expected for Southwestern Energy in the to-be-reported quarter as well.

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Southwestern Energy Company (SWN): Free Stock Analysis Report
Chevron Corporation (CVX): Free Stock Analysis Report
Exxon Mobil Corporation (XOM): Free Stock Analysis Report
Chesapeake Energy Corporation (CHK): Free Stock Analysis Report
Apache Corporation (APA): Free Stock Analysis Report
Parsley Energy, Inc. (PE): Free Stock Analysis Report
Crescent Point Energy Corporation (CPG): Free Stock Analysis Report
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