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Production Growth to Aid Concho Resources (CXO) Q4 Earnings

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We expect Concho Resources Inc. CXO to beat expectations when it reports fourth-quarter 2018 results after the closing bell on Tuesday, Feb 19. The current Zacks Consensus Estimate for the quarter under review is a profit of $1.10 per share on revenues of $1.2 billion.

In the preceding three-month period, the Midland, TX-based oil and gas producer beat the consensus mark by 25.7% on higher commodity-price realizations and robust production growth.

As far as earnings surprises are concerned, the Permian-focused player has an excellent record, having gone past the Zacks Consensus Estimate in each of the last four reports. This is depicted in the graph below.

Concho Resources Inc. Price and EPS Surprise

 

Concho Resources Inc. Price and EPS Surprise | Concho Resources Inc. Quote

Investors are keeping their fingers crossed and hoping that the company can continue winning ways by surpassing earnings estimate this time around too. Thankfully, our model indicates that Concho Resources might beat on earnings in the fourth quarter.

Let’s delve deeper and find out the factors impacting the results.

Why a Likely Positive Surprise?

Our proven model shows that Concho Resources is likely to beat the Zacks Consensus Estimate this quarter as it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and Zacks Rank #3 (Hold) or higher for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +0.25%. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: Concho Resources currently has a Zacks Rank of 3, which, when combined with a positive ESP, makes us confident of earnings beat. 

Note that we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

What is Driving the Better-Than-Expected Earnings?

The surge in output, coupled with increased oil price realizations, should lead to solid earnings growth.

Our model estimates fourth-quarter production volumes to average 309,577 barrels of oil equivalent per day (Boe/d), improving from 286,634 BOE/d in the third quarter and 47% above the year-ago output of 211,083 BOE/d. The strong production growth reflects last year’s RSP Permian acquisition.

Analysts polled by Zacks also envision realized crude prices to increase, which may further buoy the company’s top-line. The Zacks Consensus Estimate for the average crude price realization in fourth quarter 2018 is $60 per barrel, up from $52.84 a year earlier and $56.38 per barrel in the previous quarter. Importantly, Concho Resources’ output is heavily oil-weighted with liquids making up around 65% of the total production. Therefore, the company’s ‘oilier’ nature of its volume mix positions it to benefit from higher crude sales prices.

Other Stocks to Consider

Concho Resources is not the only energy company looking up this earnings season. Here are some firms from the 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:

Sunoco LP SUN has an Earnings ESP of +26.89% and a Zacks Rank #2 (Buy). The partnership is slated to release earnings on Feb 20. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

C&J Energy Services, Inc. has an Earnings ESP of +26.26% and a Zacks Rank #3. The company is slated to release earnings on Feb 21.

Diamondback Energy, Inc. FANG has an Earnings ESP of +1.10% and a Zacks Rank #3. The company is slated to release earnings on Feb 19.

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