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Can Williams Companies (WMB) Pull a Surprise in Q1 Earnings?

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Energy infrastructure provider Williams Companies (WMB - Free Report) is set to release first-quarter 2017 results after the closing bell on May 3.

In the preceding three-month period, the Tulsa, OK-based company delivered a positive earnings surprise of 6.25% on the back of cost reductions and improvement in financial performance. Coming to earnings surprise history, the company posted a negative average earnings surprise of 9.69% in the trailing four quarters. Let’s see how things are shaping up for this announcement.

Factors at Play

Williams Companies underwent a major change in 2017 when it abandoned its GP/MLP model in exchange for 289 million units of its midstream MLP William Partners WPZ. This has helped to shore up finances of William Partners and also improved the coverage metrics of Williams. The company also boosted its quarterly dividend by 50% to 30 cents per share. This is expected to position the company for sustainable, long-term growth, as well as solidify the investment-grade credit ratings of its subsidiary.

In the first quarter, the rig count and the natural gas production in the Marcellus area increased by around 114% and 4%, respectively. This is likely to positively impact William Partners from which it derives maximum earnings. Increased demand of natural gas from residential customers in the quarter owing to lower winter temperature will contribute to earnings. 

Despite these positives, the company’s high leverage ratio of over 80% makes it susceptible to financial risk and can affect its earnings adversely. Further, the company’s exposure to commodity price volatility may hamper its growth potential. This is also reflected in the price performance of the company which declined around 5% in the quarter.   

Williams Companies, Inc. (The) Price and Consensus


Earnings Whispers

Our proven model does not conclusively show that Williams Companies 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) 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%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at 20 cents.  You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Williams Companies currently carries a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

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

Stocks to Consider

While earnings beat looks uncertain for Williams Companies categorized under the Zacks U.S. Oil and Gas Production & Pipelines industry, here are some companies for investors to consider in the broader energy space that according to our model have the right combination of elements to post an earnings beat this quarter:

Earthstone Energy, Inc ESTE is expected to release first-quarter earnings results on May 9. The company has an Earnings ESP of +133.33% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chesapeake Energy Corporation CHK is expected to release first-quarter earnings results on May 4. The company has an Earnings ESP of +5.26% and a Zacks Rank #3.

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