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Chevron (CVX) Likely to Beat on Q4 Earnings: Stock to Gain?

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U.S. energy giant Chevron Corp. (CVX) is set to release fourth-quarter 2016 results before the opening bell on Jan 27.

In the preceding three-month period, the San Ramon, CA-based supermajor delivered a positive earnings surprise of 74.36% despite plunging commodity prices, mainly due to improved downstream results. However, the company missed the Zacks Consensus Estimate in two of the past four quarters.

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

Why a Likely Positive Surprise?

Chevron Corporation Price and EPS Surprise

Our proven model shows that Chevron is likely to beat on earnings because it has the right combination of two key ingredients.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +4.62%. This is very meaningful and a leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Chevron carries a Zacks Rank #3 (Hold), which combined with positive Earnings ESP makes us confident about a positive earnings beat.

Note that stocks with Zacks Ranks #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions. 

What is Driving the Better-Than-Expected Earnings?

Given that Chevron is one of the most oil-weighted companies, it is poised to benefit from the recent OPEC deal and the subsequent advancement of crude. As it is, the company has been able to boost returns and remain competitive by undertaking aggressive cost reduction, exiting unprofitable markets and streamlining the organization.

Chevron’s existing oil and gas development project pipeline is among the best in the industry. Backed by the big Australian LNG projects (Gorgon and Wheatstone) as well as deepwater developments in the U.S. Gulf of Mexico, the company estimates volume growth from the current 2.5 million barrels of oil equivalents per day (MMBOE/d) to 2.9–3.0 MMBOE/d by 2017.

Also, the company’s financial flexibility and strong balance sheet are real assets in this highly uncertain period for the economy. Chevron is in excellent financial health with more than $7 billion in cash on hand and an investment-grade credit rating with a debt-to-capitalization ratio of 23.7%. Importantly, Chevron announced a 1% increase in its quarterly dividend to $1.08 per share, or $4.32 per share annualized despite the freefall in commodity price.

Other Stocks to Consider

Here are some stocks from the Oils/Energy sector that you may want to consider, as our model shows that it has the right combination for an earnings beat this quarter.

W&T Offshore, Inc. (WTI) is expected to release fourth-quarter earnings results on Mar 14. The company has an Earnings ESP of +73.91% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sprague Resources LP (SRLP) has an Earnings ESP of +3.64% and a Zacks Rank #2. The partnership is anticipated to release fourth-quarter earnings on Mar 9.

Pioneer Natural Resources Company ((PXD - Free Report) ) has an Earnings ESP of +10.00% and a Zacks Rank #2. The company is likely to release fourth-quarter earnings on Feb 7.

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