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Can EXCO Resources (XCO) Surprise Q3 Earnings?

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Independent natural gas producer EXCO Resources Inc. is set to release its third-quarter 2016 results after the closing bell on Tuesday, Nov 1.

In the preceding three-month period, the Dallas, TX-based upstream player delivered a positive earnings surprise of 28.57% in spite of challenges associated with a steep drop in oil price. This was primarily owing to effective cost-control measures.

In terms of earnings surprise history, the company has an excellent record. It surpassed estimates in each of the last four quarters with an average beat of 33.20%.

EXCO RESOURCES Price and EPS Surprise

 

EXCO RESOURCES Price and EPS Surprise | EXCO RESOURCES Quote

Let’s see how things are shaping up for this announcement.

Factors to Consider This Quarter

The third quarter saw natural gas advancing around 25% sequentially. Natural gas futures during the Jul–Sep 2016 period hovered mostly between $2.5 per million Btu (MMBtu)and $3 per MMBtu. Given that the commodity makes up for around 90% of EXCO Resources’ total production, the improvement in pricing bodes well for the company.

Moreover, the company’s successful cost-reduction initiatives are expected to cushion the results to a large extent. The company’s efforts to improve liquidity and restructure the balance sheet to enhance capital structure are also expected to have a positive impact on the quarterly results.

However, EXCO Resources’ core operational region – the Haynesville shale – has seen a drastic fall in the number of gas rigs employed. Production is likely to suffer as a result.

Earnings Whispers

Our proven model does not conclusively show that EXCO Resources 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. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

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 0.00%.

Zacks Rank: EXCO Resources has a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the company’s 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 EXCO Resources, 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 earnings beat this quarter:

W&T Offshore Inc. (WTI - Free Report) has an Earnings ESP of +11.63% and a Zacks Rank #1. The company is expected to release earnings results on Nov 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Devon Energy Corp. (DVN - Free Report) has an Earnings ESP of +20.00% and a Zacks Rank #2. The partnership is anticipated to release earnings on Nov 1.

Comstock Resources Inc. (CRK - Free Report) has an Earnings ESP of +3.74% and a Zacks Rank #2. The company is likely to release earnings on Nov 8.

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