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Factors to Pay Attention to Ahead of BP's Q2 Earnings Release

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BP plc (BP - Free Report) is set to report second-quarter 2020 results on Aug 4.

In the last-reported quarter, the leading integrated energy company missed the Zacks Consensus Estimate owing to a drop in oil-equivalent production, commodity prices and refining marker margin. Notably, the company beat consensus estimates in three of the prior four quarters, the average earnings surprise being 8.4%. This is depicted in the graph below:

BP p.l.c. Price and EPS Surprise


BP p.l.c. Price and EPS Surprise

BP p.l.c. price-eps-surprise | BP p.l.c. Quote

Let’s see how things have shaped up prior to this announcement.

Trend in Estimate Revision

The Zacks Consensus Estimate for second-quarter loss per share of 99 cents has witnessed three downward revisions and zero upward revision over the past 30 days. The estimated figure suggests a decline of 219.3% from the prior-year reported number.

The consensus estimate for second-quarter revenues of $42.2 billion indicates a 42.7% decline from the year-ago reported figure.

Factors to Consider

Since April-end, the price of West Texas Intermediate (WTI) crude has improved more than 239% through the June quarter owing to partial recovery in fuel demand with the easing of lockdown measures. The recovered commodity pricing scenario is likely to have lent some support to BP’s upstream businesses.

However, as compared to the year-ago quarter, the price of the commodity has declined sharply owing to the pandemic. Notably, for the month of April, May and June of 2020, average WTI crude prices were recorded at $16.55 per barrel, $28.56 and $38.31, respectively, per data from the U.S. Energy Information Administration (EIA). The figures are considerably lower than the respective $63.86, $60.83 and $54.66 a year ago – per EIA data.

Hence, despite recovering in the June quarter, the crude pricing scenario was weaker than the year-ago period, hurting the British energy major’s upstream business. Also, the pandemic has mostly compelled explorers to remove rigs from oil plays. Thus, with the removal of rigs, production volumes of energy majors are likely to have been hurt, with BP unlikely to be an exception. Notably, the consensus estimate for total hydrocarbon production is pinned at 2,438 thousand barrels of oil equivalent per day (MBoE/D), suggesting a drop from the year-ago quarter’s 2,625 MBoE/D.

Moreover, refining operations are likely to have been affected by the pandemic since global demand for refined products took a considerable hit compared to the year-ago quarter. However, a partial resumption of economic activity and thus some recovery in fuel demand since more people got back to work, especially in the months of May and June, are likely to have favored the downstream business partially. Overall, we expect the pandemic to have hurt the integrated firm’s refinery throughputs in the second quarter. Notably, the Zacks Consensus Estimate for the same is pegged at 1,486 thousand barrels per day (MBbl/D), suggesting a decline from 1,597 MBbl/D reported in the June quarter of 2019.

Earnings Whispers

Our proven model does not indicate an earnings beat for BP this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases chances of an earnings beat. That is not the case here as you will see below.

Earnings ESP: The company’s Earnings ESP is 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at a loss of 99 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: BP currently carries a Zacks Rank #3.

Stocks to Consider

While an earnings beat looks uncertain for BP, here are some companies from the Energy space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming quarterly reports:

Canadian Natural Resources Limited (CNQ - Free Report) has an Earnings ESP of +6.48% and is a Zacks #3 Ranked player. The company is scheduled to release second-quarter results on Aug 6. You can see the complete list of today’s Zacks #1 Rank stocks here.

Range Resources Corporation (RRC - Free Report) has an Earnings ESP of +2.61% and a Zacks Rank of 3. It is scheduled to report second-quarter results on Aug 3.

Bonanza Creek Energy, Inc. (BCEI - Free Report) has an Earnings ESP of +13.66% and holds a Zacks Rank #1. It is set to report second-quarter results on Aug 6.

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