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Chesapeake (CHK) Q2 Earnings: Another Beat in the Cards?

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Energy player Chesapeake Energy Corporation (CHK - Free Report) is slated to report second-quarter 2017 results on Aug 3, before the opening bell.

In the preceding three-month period, the company reported a positive earnings surprise of 21.05%. Coming to the earnings surprise history, Chesapeake beat estimates in three of the last four quarters.

Let’s see how things are shaping up prior to the announcement.

Earnings Whispers

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

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +7.14%. This is because the Most Accurate estimate stands at 15 cents, while the Zacks Consensus Estimate is pegged lower at 14 cents earnings. This is a meaningful and 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: Chesapeake carries a Zacks Rank #3 (Hold), which when combined with positive Earnings ESP, makes us confident about an earnings beat.

Note that stocks with Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings. Meanwhile, Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.

Q2 Price Performance

During the quarter, Chesapeake has lost 16.3% as compared to the 16.8% decline of the industry.

Factors Likely to Affect Earnings

The crude pricing scenario over the first two months of second-quarter 2017 was way rosier than the year-ago period. Hopes of OPEC’s production cut deal extension was the prime factor driving the year-over-year hike in prices during April and almost the entire of May. Market anticipations proved somewhat correct as OPEC and 11 non-OPEC players, including Russia, decided to extend the production cut deal until Mar 2018 in the Vienna meeting.

The same goes for natural gas as the average trading price of the commodity for each of the three months of the quarter was considerably better than the prior-year quarter. Thus, we can conclude that there was a modest recovery in natural gas prices during Q2 after the commodity hit its lowest annual average price during 2016 in almost 20 years.  

We can say that the healthy commodity prices were favorable for the upstream business of the company. In fact, the rig count data provided by oilfield service firm Baker Hughes, a GE company (BHGE - Free Report) showed that for each week in second-quarter 2017, shale drillers kept on adding rigs in the oil patches reflecting increased exploration operations.

Higher production of the commodities is likely to create more need for pipeline and storage infrastructures for transporting and storing the surplus output of oil and gas. Hence, the second quarter could prove favorable for Chesapeake’s midstream business as well.

On top of that, the balance sheet looks healthy as reflected by the decline in long-term debt over the last three years.

Other Stocks to Consider

Other energy companies you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:

Global Partners LP (GLP - Free Report) has an Earnings ESP of +60.00% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Williams Companies Inc (WMB - Free Report) has an Earnings ESP of +50.00% and a Zacks Rank #3.

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