Wall Street expects a year-over-year increase in earnings on higher revenues when Callon Petroleum (
CPE Quick Quote CPE - Free Report) reports results for the quarter ended June 2022. While this widely-known consensus outlook is important in gauging the company's earnings picture, a powerful factor that could impact its near-term stock price is how the actual results compare to these estimates.
The earnings report, which is expected to be released on August 3, 2022, might help the stock move higher if these key numbers are better than expectations. On the other hand, if they miss, the stock may move lower.
While the sustainability of the immediate price change and future earnings expectations will mostly depend on management's discussion of business conditions on the earnings call, it's worth handicapping the probability of a positive EPS surprise.
Zacks Consensus Estimate
This independent oil and gas company is expected to post quarterly earnings of $3.90 per share in its upcoming report, which represents a year-over-year change of +161.7%.
Revenues are expected to be $663.32 million, up 50.6% from the year-ago quarter.
Estimate Revisions Trend
The consensus EPS estimate for the quarter has been revised 4.57% lower over the last 30 days to the current level. This is essentially a reflection of how the covering analysts have collectively reassessed their initial estimates over this period.
Investors should keep in mind that an aggregate change may not always reflect the direction of estimate revisions by each of the covering analysts.
Estimate revisions ahead of a company's earnings release offer clues to the business conditions for the period whose results are coming out. This insight is at the core of our proprietary surprise prediction model -- the Zacks
Earnings ESP (Expected Surprise Prediction).
The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a more recent version of the Zacks Consensus EPS estimate. The idea here is that analysts revising their estimates right before an earnings release have the latest information, which could potentially be more accurate than what they and others contributing to the consensus had predicted earlier.
Thus, a positive or negative Earnings ESP reading theoretically indicates the likely deviation of the actual earnings from the consensus estimate. However, the model's predictive power is significant for positive ESP readings only.
A positive Earnings ESP is a strong predictor of an earnings beat, particularly when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Our research shows that stocks with this combination produce
a positive surprise nearly 70% of the time, and a solid Zacks Rank actually increases the predictive power of Earnings ESP.
Please note that a negative Earnings ESP reading is not indicative of an earnings miss. Our research shows that it is difficult to predict an earnings beat with any degree of confidence for stocks with negative Earnings ESP readings and/or Zacks Rank of 4 (Sell) or 5 (Strong Sell).
How Have the Numbers Shaped Up for Callon?
For Callon, the Most Accurate Estimate is higher than the Zacks Consensus Estimate, suggesting that analysts have recently become bullish on the company's earnings prospects. This has resulted in an Earnings ESP of +1.85%.
On the other hand, the stock currently carries a Zacks Rank of #3.
So, this combination indicates that Callon will most likely beat the consensus EPS estimate.
Does Earnings Surprise History Hold Any Clue?
While calculating estimates for a company's future earnings, analysts often consider to what extent it has been able to match past consensus estimates. So, it's worth taking a look at the surprise history for gauging its influence on the upcoming number.
For the last reported quarter, it was expected that Callon would post earnings of $3.28 per share when it actually produced earnings of $3.43, delivering a surprise of +4.57%.
Over the last four quarters, the company has beaten consensus EPS estimates three times.
An earnings beat or miss may not be the sole basis for a stock moving higher or lower. Many stocks end up losing ground despite an earnings beat due to other factors that disappoint investors. Similarly, unforeseen catalysts help a number of stocks gain despite an earnings miss.
That said, betting on stocks that are expected to beat earnings expectations does increase the odds of success. This is why it's worth checking a company's Earnings ESP and Zacks Rank ahead of its quarterly release. Make sure to utilize our
Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
Callon appears a compelling earnings-beat candidate. However, investors should pay attention to other factors too for betting on this stock or staying away from it ahead of its earnings release.
Expected Results of an Industry Player
Another stock from the Zacks Oil and Gas - Exploration and Production - United States industry, Chesapeake Energy (
CHK Quick Quote CHK - Free Report) , is soon expected to post earnings of $3.74 per share for the quarter ended June 2022. This estimate indicates a year-over-year change of +128.1%. Revenues for the quarter are expected to be $1.71 billion, up 147.4% from the year-ago quarter.
Over the last 30 days, the consensus EPS estimate for Chesapeake Energy has been revised 4.7% down to the current level. Nevertheless, the company now has an Earnings ESP of 0.00%, reflecting an equal Most Accurate Estimate.
This Earnings ESP, combined with its Zacks Rank #2 (Buy), makes it difficult to conclusively predict that Chesapeake Energy will beat the consensus EPS estimate. Over the last four quarters, the company surpassed consensus EPS estimates three times.
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