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What's in Store for Concho Resources (CXO) in Q1 Earnings?

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Upstream entity Concho Resources Inc. CXO is set to release first-quarter 2017 results after the closing bell on May 3.

In the preceding three-month period, the Midland, TX-based company delivered a positive earnings surprise of 322.22%. Further, coming to earnings surprise history, Concho Resources has an impressive record. The company posted a positive average earnings surprise of 310.74% in the trailing four quarters. Let’s see how things are shaping up for this announcement

Factors at Play

Concho Resources is engaged in the development and exploration of oil and natural gas properties with four main operating areas namely, Northern Delaware Basin, the Southern Delaware Basin, the Midland Basin and the New Mexico Shelf.

Leading shale driller EOG Resources (EOG - Free Report) recently reported the discovery of significant Delaware Basin well to Texas regulators. This development also projects good prospects for its peer in the region, Concho Resources. It is likely that Concho Resources will use its position in the Delaware Basin as a springboard for production growth, generating earnings. The company also increased its production guidance from 18–21% to 20–24%. Further, the company has a manageable leverage ratio of 26.4% (one of the lowest when compared to its peers) making it less susceptible to financial risk. The estimate revision for the company also moved upwards in the last 90 days by 675%, boding well for the quarter ahead.

However, weakness in the crude prices, especially in March, when the oil prices traded below $50 per barrel, can affect the company's earnings.  Further, the company recently increased its capex budget from $1.6 billion to $1.8 billion which could also lower its earnings. These factors have got reflected in the share performance of the company which dropped by more than 3% in the quarter.  

Concho Resources Inc. Price and Consensus

 

Earnings Whispers

Our proven model does not conclusively show that Concho Resources 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.

Negative 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 Zacks Consensus Estimate is 31 cents whereas the Most Accurate estimate is pegged lower at 30 cents.  You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Concho Resources currently carries a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the company’s negative ESP 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 Concho Resources categorized under the Zacks U.S. Oil and Gas Production & Exploration industry, here are some companies for investors to consider within the same industry that, according to our model has 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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