Back to top

Analyst Blog

Zacks Equity Research

Southwestern Energy (SWN) Q3 Earnings: What to Expect?

SWN EPD BHI DNR

Trades from $3
Independent natural gas operator, Southwestern Energy Co. (SWN - Free Report) is set to release third-quarter 2016 results on Oct 20, after the market closes.
 
The Spring, TX-based upstream player has an impressive earnings surprise history. The company managed to beat estimates in all of the last four quarters with an average beat of 65.38%. In the preceding three-month period, it delivered a positive earnings surprise of 18.18%.
 
Let’s see how things are shaping up for this announcement.

SOUTHWESTRN ENE Price and EPS Surprise

 

SOUTHWESTRN ENE Price and EPS Surprise | SOUTHWESTRN ENE Quote

Factors to Consider This Quarter
 
Southwestern Energy has a diversified reserve base in multiple U.S. basins and remains focused on investments in high-return areas like Fayetteville, Appalachia and New Ventures. Moreover, the company maintains a competitive cost structure, which could contribute to steady growth and returns throughout the business cycle. To this end, it has initiated a plan to accelerate investment of an additional $500 million (allocated from the July equity offering) into high return projects, about $375 million of which is expected to be invested by the end of 2016. The company expects benefits from these investments to be reflected in the third quarter.
 
However, an oversupplied U.S. natural gas market with low demand provides little space for Southwestern Energy to flourish, as the commodity accounts for almost all of the company’s reserves and production. A volatile macro backdrop also raises caution as it might result in the company’s underperformance.
 
Earnings Whispers
 
Our proven model does not conclusively show that Southwestern Energy is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #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 currently pegged at -42.86%. The Most Accurate estimate for Southwestern Energy stands at 4 cents, while the Zacks Consensus Estimate is pegged higher at 7 cents.
 
Zacks Rank: Southwestern carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, the company’s negative ESP makes surprise prediction difficult.
 
We caution against Sell-rated stocks (Zacks Rank #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
 
Stocks to Consider
 
While an earnings beat looks uncertain for Southwestern, here are some firms that you may want to consider on the basis of our model. These have the right combination of elements to post an earnings beat this quarter:
 
Baker Hughes Inc. (BHI - Free Report) has an Earnings ESP of +9.09% and a Zacks Rank #2. The company is expected to release quarterly results on Oct 25. You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Denbury Resources Inc. (DNR - Free Report) has an Earnings ESP of +50.00% and a Zacks Rank #2. The company is expected to release third-quarter numbers on Nov 3.
 
Enterprise Products Partners LP (EPD - Free Report) has an Earnings ESP of +3.33% and a Zacks Rank #3. The company is expected to report third-quarter earnings on Oct 27.
 
Confidential from Zacks
 
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>