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Chevron (CVX): Is a Surprise in Store this Earnings Season?

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U.S. energy giant Chevron Corp. (CVX - Free Report) is expected to release second-quarter 2016 results before the opening bell on Friday, Jul 29.

In the preceding three-month period, the San Ramon, CA-based supermajor delivered a 129.41% negative earnings surprise amid a plunge in oil prices. Moreover, the company failed to beat the Zacks Consensus Estimate in three of the past four quarters, with an average miss of 82.37%.

Let’s see how things are shaping up for this announcement.

Factors to Consider This Quarter

Through the quarter, oil price improved significantly from mid-February when West Texas Intermediate (WTI) crude fell to a 12-year low mark of $26.05 per barrel. Moreover, last month, oil prices settled above the psychologically important $50 per barrel level for the first time in more than 10 months.

Chevron being one of the most oil-weighted majors, is poised to see significant share price appreciation.

Moreover, the company’s financial flexibility and strong balance sheet are real assets in this highly uncertain period for the economy. The fact that Chevron has continued to reward shareholders with an attractive dividend yield should also be considered. But will all the positives lead to a positive earnings surprise?

Earnings Whispers

Our proven model does not conclusively show that Chevron will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat consensus estimates. That is not the case here as you will see below.     

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -3.23%. This is because the Most Accurate estimate stands at 30 cents while the Zacks Consensus Estimate is pegged higher at 31 cents.

Zacks Rank: Chevron has a Zacks Rank #2. Though this increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the entity is seeing negative estimate revisions.

CHEVRON CORP Price, Consensus and EPS Surprise

CHEVRON CORP Price, Consensus and EPS Surprise | CHEVRON CORP Quote

Stocks to Consider

While an earnings beat looks uncertain for Chevron, here are some companies you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:

Legacy Reserves LP has an Earnings ESP of +31.58% and a Zacks Rank #1.

Northern Oil and Gas, Inc. (NOG - Free Report) has an Earnings ESP of +20.00% and a Zacks Rank #1.

Spectra Energy Corp (SE - Free Report) has an Earnings ESP of +16.00 % and a Zacks Rank #2.

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