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Apache (APA): What's in the Cards this Earnings Season?

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U.S. energy firm Apache Corp. (APA - Free Report) is set to release second-quarter 2016 results before the opening bell on Thursday, Aug 4.

Last quarter, the company delivered a positive earnings surprise of 56.04%. We note that Apache reported an average positive surprise of 100.02% in the preceding four quarters. Let’s see how things are shaping up for this announcement.  

Factors to Consider This Quarter 

Apache has a large, geographically diversified reserve base and a multi-year trend in reserve replacement and production growth. The company has been taking initiatives to align capital spending with its cash flows, while continuing to build a high-quality inventory of projects capable of delivering attractive returns even in a low oil price environment.

Moreover, Apache's initiatives for cost cutting and portfolio restructuring are expected to improve its earnings performance in the future.

APACHE CORP Price and EPS Surprise

APACHE CORP Price and EPS Surprise | APACHE CORP Quote

It is to be noted that the second quarter saw crude advancing more than 26% sequentially − the best quarterly percentage gain in seven years. Throughout 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, in June, oil prices were above the psychologically important $50 per barrel level for the first time in more than 10 months.

The recovery on the crude front is favorable for upstream players like Apache since the company generates cash flows after selling the commodity.

Let’s see whether the favorable fundamentals translate into an earnings beat in the second quarter.

What Our Model Indicates

Our proven model does not conclusively show that Apache is likely to 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) for this to happen. 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 0.00% since both are pegged at a loss of 27 cents.

Zacks Rank: Apache has a Zacks Rank #2, which increases the predictive power of ESP. However, we need a positive ESP to be confident of a beat.

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

Stocks That Warrant a Look

Here are some companies to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter.

Legacy Reserves LP has an Earnings ESP of +12.50% and a Zacks Rank #2.

Northern Oil and Gas, Inc. (NOG - Free Report) has an Earnings ESP of +25.00% and a Zacks Rank #1.

Spectra Energy Corp (SE - Free Report) has an Earnings ESP of+7.69%and a Zacks Rank #2.

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