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Apache (APA) Q4 Earnings: Price Gains to Offset Low Output?

Apache Corporation APA is scheduled to report fourth-quarter earnings on Feb 22, before the market opens.

In the preceding three-month period, the company delivered a positive earnings surprise of 180% by reporting adjusted earnings of 4 cents per share against the Zacks Consensus Estimate of a loss of 5 cents. The outperformance stemmed from higher oil and gas realizations, and lower costs.

However, as far as earnings surprise history is concerned, the Houston, TX-based upstream operator is on a bit of a slippery ground, posting an average negative earnings surprise of 23.33% in the trailing four quarters.

Apache Corporation Price and EPS Surprise


Apache Corporation Price and EPS Surprise | Apache Corporation Quote


Let’s see how things are shaping up prior to the announcement.

Which Way Are Estimates Headed?

Let’s look at the estimate revision trend to get a clear picture of what analysts expect from the earnings release.

The Zacks Consensus Estimate of 21 cents for the fourth quarter has been revised upward by a penny in the last 30 days. It reflects growth of almost 135% from the year-ago quarter.

Further, analysts polled by Zacks expect revenues of $1,545 million for the quarter, up 6.5% from the prior-year quarter.

Factors at Play

While we believe that improving realized prices will enhance the earnings of the company, Apache’s tepid production growth from the international operations keep us on the sidelines.

The Zacks Consensus Estimate for total daily production is pegged at 441 thousand oil-equivalent barrels (MBOE), lower than 448 MBOE/d and 490 MBOE/d reported in the prior quarter and the year-ago quarter respectively.

In fact, last month the company released a drab production update for the fourth quarter owing to weaker-than-expected performance of some of its projects in the North Sea. The company currently expects fourth-quarter production values from international operations to be in the range of 138,000-140,000 barrels of oil equivalent per day (BOE/d) compared with prior forecast levels of 150,000-160,000 BOE/d. This compares unfavorably with 144 BOE/d and 158 BOE/d levels recorded in the last quarter and the fourth quarter of 2016, respectively.

Nevertheless, the company expects its output in the United States to be at the high end of its guidance range of 218,000-224,000 BOE/d for the fourth quarter driven by strong performance in the Permian shale play. However, the total production is likely to be hurt owing to international shortfall.

As it is, the company has been bearing the brunt of contracting production volumes in all of the last three reported quarters. From January to September 2017, Apache’s production averaged 345,495 BOE/d, down 13% from the first nine months of 2016.

Nevertheless, Apache expects improved realized prices to offer respite amid the declining volumes. The Zacks Consensus Estimate for average price of oil in the Permian Basin — where Apache’s operations are primarily focused — is expected to improve 8.2% from the year-ago quarter to stand at $49.55 a barrel. Further, the analysts polled by Zacks also envision a year-over-year increase of 5.3% and 44% in the realized prices of natural gas and natural gas liquids respectively, in the fourth quarter of 2017.

Earnings Whispers

Our proven model too does not conclusively show that Apache 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) for this to happen. 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.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -10.80%. This is because the Most Accurate estimate is pegged at 18 cents, below the Zacks Consensus Estimate of 21 cents.

Zacks Rank: Apache carries a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the company’s negative ESP makes a surprise prediction difficult.

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

Stocks With Favorable Combination

Though an earnings beat looks uncertain for Apache, here are some firms from the energy space you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Keane Group, Inc. FRAC has an Earnings ESP of +5.36% and a Zacks Rank #1. The company is likely to release fourth-quarter earnings on Feb 26. You can see the complete list of today’s Zacks #1 Rank stocks here.

RSP Permian, Inc. RSPP has an Earnings ESP of +1.64%. It is a Zacks #1 Ranked player. It is expected to unveil fourth-quarter earnings on Feb 27.

EOG Resources EOG has an Earnings ESP of +3.61% and a Zacks Rank of 1. The company is scheduled to release fourth-quarter earnings on Feb 27.

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