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Anadarko Petroleum Corporation (APC - Analyst Report), one of the largest independent oil and natural gas exploration and production (E&P) companies of the world, is set to post its third-quarter 2012 financial results after the market bell on October 29, 2012.

Recap, Second Quarter-2012

Anadarko reported adjusted net income per share of 85 cents, beating the Zacks Consensus Estimate of 77 cents per share but falling short of the year-ago earnings of $1.14 per share.

Revenue reported in the said quarter witnessed a 12.2% decline to $3.22 billion from $3.67 million in the prior-ago quarter. Revenue also trailed the Zacks Consensus Estimate of $3.42 billion.

The top-line lag was due to a 45.3% and 23.8% slash in natural gas and natural gas liquid sales from the year-earlier period.

Guidance 2012

Anadarko revised its 2012 sales expectation by 3 million barrels to 261–265 million barrels of oil equivalent (“MMBOE”) from the prior range of 258–262 MMBOE. The third quarter sales volume is expected to be in the range of 65-67 MMBOE.

Capital investment target of the company for the third quarter and full year 2012 is expected to be in the range of $1.65–$1.8 billion and $6.6–$6.9 billion, respectively

Zacks Consensus

The Zacks Consensus Estimate for the third quarter 2012 is 76 cents per share, higher than the earnings of 65 cents reported in the comparable year-ago quarter. At present, the Zacks Consensus Estimate for earnings ranges from 61 cents per share to $1.09 per share.

For 2012, the Zacks Consensus Estimate is $3.51 per share, up 3.7% from $3.38 per share registered in the earlier year. The current Zacks Consensus Estimate ranges between $3.03 per share and $4.19 per share.

Estimate Revision Trend

Agreement


We observe significant estimate revisions at this point. For third quarter 2012, among a total of 24 estimates, 3 inched upwards and 7 estimates went up in the last 7 days and 30 days, respectively. Conversely, 1 lone estimate stooped down in the last 7 days and 9 estimates moved south in the past month.

For 2012, out of 22 estimates, 2 and 8 trended up in the last week and month, respectively, whereas 1 and 6 estimates slithered down in the past 7 and 30 days, respectively.

Magnitude

The Zacks Consensus Estimate for the third quarter increased by a penny for the past week. Also, the estimate increased by 2 cents to 76 cents from 74 cents in the last 30 days. For 2012, the consensus estimate notched up by 4 cents to $3.51 from $3.47 and by 2 cents to $3.51 from $3.49 in the past month and week, respectively.

Surprise History

With respect to earnings surprise, the company’s performance was strong in three of the last four quarters and missed the estimates in the third quarter of 2011. The earnings surprise in the last four quarters ranged from (1.5%) to 41.7%. The average surprise over the last four quarters remained a positive 15.4%.  

Our Recommendation

Anadarko’s significant natural gas and oil discoveries in Africa and also monetization of a portion of its stake in the Salt Creek field in Wyoming and the Lucius development project in the Gulf of Mexico will accentuate the future growth prospects of the company. The company’s ambitious capital program of $7.0 billion to $7.4 billion for 2012 will also boost exploration goals.

However, we expect generic risks related to unexpected outages or rig accidents, a sluggish US macro environment and commodity price volatilities on a continuous basis will threaten the company’s financials.

Anadarko operates in a highly competitive energy market and faces stiff competition from companies like ConocoPhilips (COP - Analyst Report) and BP plc (BP - Analyst Report).

Currently, we are maintaining a long-term Neutral recommendation on Anadarko Petroleum Corp. The company has a Zacks #3 Rank implying a short-term Hold rating on the stock.

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