Independent oil and gas explorer Concho Resources Inc. (CXO - Free Report) is set to release its second-quarter 2017 results after the closing bell on Wednesday, Aug 2.
In the preceding three-month period, the Midland, TX-based Permian pure play reported better-than-expected earnings on the back of on the back of higher commodity prices and strong production growth.
Coming to earnings surprise history, Concho Resources has an excellent record: it's beaten estimates in each of the last four quarters.
Let’s see how things are shaping up for this announcement.
Factors to Consider This Quarter
Oil prices fared badly in the second quarter, erasing all the gains associated with the OPEC-led output cut. The continued rise in domestic production thanks to soaring shale output have dragged down the commodity well below the psychologically-critical $50 threshold. This will hamper Concho Resources’ earnings and cash flows.
However, efficiencies on the production front might be able to mitigate some of the damage. The company expects to maintain a its robust production profile in the upcoming few quarters.
Moreover, Concho Resources has been able to reduce costs that will provide some buffer amid the tumbling commodity prices. Driven by its operational efficiencies, Concho Resources have been able to significantly reduce its cash cost structure. While lease operating expenses on a per barrel basis decreased 22% annually in 2016, cash G&A fell by 6%.
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) to be able to beat consensus estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
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 -2.33%. This is because the Most Accurate estimate stands at 42 cents, while the Zacks Consensus Estimate is pegged higher, at 43 cents.
Zacks Rank: Concho Resources has a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.
We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Concho Resources has lost 5.3% of its value during the second quarter versus the 16.9% decline of its industry.
Stocks to Consider
While earnings beat looks uncertain for Concho Resources, here are some firms from the energy space you may want to consider on the basis of our model, which shows that they have the right combination of elements to post earnings beat this quarter:
Summit Midstream Partners L.P. (SMLP - Free Report) has an Earnings ESP of +208.33% and a Zacks Rank #2. The company is expected to release earnings results on Aug 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
WPX Energy Inc. (WPX - Free Report) has an Earnings ESP of +6.25% and a Zacks Rank #3. The partnership is anticipated to release earnings on Aug 2.
Diamondback Energy Inc. (FANG - Free Report) has an Earnings ESP of +1.06% and a Zacks Rank #3. The company is likely to release earnings on Aug 1.
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