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Why We Expect SM Energy (SM) to Deliver Q2 Earnings Beat

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SM Energy Company (SM - Free Report) is set to beat earnings estimates when it reports second-quarter 2021 results on Jul 29, after the closing bell.  

In the last reported quarter, the upstream company announced adjusted loss of 5 cents per share, narrower than the Zacks Consensus Estimate of a loss of 23 cents due to an increase in realized commodity prices, and decreased costs and operating expenses. The positives were partially offset by a decline in production volumes.

In the trailing four quarters, SM Energy’s earnings beat the Zacks Consensus Estimate thrice and missed the same on another occasion, with the average surprise being 38.3%. This is depicted in the graph below:

SM Energy Company Price and EPS Surprise

SM Energy Company Price and EPS Surprise

SM Energy Company price-eps-surprise | SM Energy Company 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 20 cents has witnessed four upward revisions and no downward movement over the past 30 days. The consensus estimate for second-quarter revenues of $399.7 million indicates a 135.6% increase from the year-ago reported figure.

What the Quantitative Model Suggests

Our proven model predicts an earnings beat for SM Energy this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat.

Earnings ESP: Earnings ESP for the company is currently +6.56%. This is because the Most Accurate Estimate is pegged at 19 cents per share, higher than the Zacks Consensus Estimate of 20 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.  

Zacks Rank: SM Energy currently holds a Zacks Rank #2.

Factors Driving the Better-Than-Expected Earnings

Favorable prices of crude oil and natural gas are primarily expected to have positively impacted the bottom line of SM Energy — one of the leading hydrocarbon producers in the Permian Basin and Eagle Ford areas — in the second quarter. The Zacks Consensus Estimate for second-quarter oil price is pegged at $62 per barrel, signaling a massive jump from the year-ago level of $22.25. Also, average natural gas price estimate is pegged at $2.77 per thousand cubic feet, indicating a rise from $1.34 in the year-ago quarter.

The consensus estimate for the company’s second-quarter production is pegged at 133 thousand barrels of oil equivalent per day (MBoe/d), indicating an increase from the year-ago level of 122.9 MBoe/d.

The effects of significant improvement in oil and natural gas prices along with increased production volumes are expected to have positioned the company for an earnings beat for the second quarter. Even though it has a strong hedging position, which provides lower risk from volatile commodity prices, the company is expected to have incurred millions of hedging losses due to high commodity prices witnessed in the second quarter. This might have put a small dent in its potential quarterly cash flow generation.

Other Stocks to Consider

Here are some other companies from the Energy space that you may also want to consider, as our model shows that these too have the right combination of elements to post an earnings beat in the upcoming quarterly reports:

EOG Resources, Inc. (EOG - Free Report) has an Earnings ESP of +3.54% and a Zacks Rank of 1. It is scheduled to report second-quarter results on Aug 4. You can see the complete list of today’s Zacks #1 Rank stocks here.

ConocoPhillips (COP - Free Report) has an Earnings ESP of +8.25% and is a Zacks #1 Ranked player. The company is scheduled to release second-quarter results on Aug 3.

Continental Resources, Inc. (CLR - Free Report) has an Earnings ESP of +8.88% and a Zacks Rank #1. The firm is scheduled to release quarterly earnings on Aug 2.