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What Earthstone Energy (ESTE) Estimates Say About Its Recent Performance

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Earthstone Energy (ESTE - Free Report) reported strong results in the last quarter, with earnings growing 359% from the March quarter of 2021 on top of sales that grew 158%. Revenue and earnings beat the Zacks Consensus Estimates by 23.4% and 39.3%, respectively.

Analyst estimates are generally a good indication of the results a company is likely to report in any given quarter. That is because analysts study various aspects of the business including the major drivers of its growth, the internal strengths and weaknesses, the cost base on which it operates, pricing strength and so forth to arrive at projections of its future performance.

Hence, these projections are studied opinions that can be depended upon. But of course, there are many moving parts in this analysis, which means that there is a margin of error.

Since analyst estimates have proved their dependability over the years, it follows that investors have a certain expectation about a company’s earnings performance based on the estimates for the concerned period. So when a company significantly underperforms or outperforms analyst estimates, there is usually a reaction from investors that is represented in the share prices. In this case, investors greeted the news with a 2.6% decline in share prices. So they clearly expected more.

Since the top- and bottom-line surprises don’t tell the whole story, let’s try to tease out exactly where the estimates differed materially from the reported results.

Earthstone beat revenue estimates by 23.4%. But all categories didn’t do equally well. Oil revenue beat estimates by 27.6%, natural gas beat by 5.0% and natural gas liquids by 7.4%.

Drilling down still further we find that oil production was 1.3% below analyst expectations while average oil price was 5.5% ahead.

Natural gas production was 2.4% below expectations while average price was 10.9% ahead. 

Also, natural gas liquids production was 3.3% below expectations while the average price was 11.1% ahead.

Conclusion

Production disappointed in all categories but natural gas was worse than oil. While higher prices saved the day, it is determined by market factors and not attributable to something that Earthstone did. This is the main reason for the pressure on prices immediately after the announcement.

Zacks Rank

The strong pricing environment has made this industry extremely attractive. This is why there are a large number of Zacks #1 (Strong Buy) stocks to choose from. In addition to ESTE, some of the others are Antero Resources (AR - Free Report) , Chesapeake Energy (CHK - Free Report) ,  Civitas Resources (CIVI - Free Report) and Comstock Resources (CRK - Free Report) .

One-Month Price Performance

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