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Twin Acquisitions to Fuel Diamondback (FANG) Q4 Earnings

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We expect Diamondback Energy, Inc. (FANG - Free Report) 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 $1.62 per share on revenues of $663.2 million.

In the preceding three-month period, the Midland, TX-based oil and gas producer beat the consensus mark by 9.9% on strong production.

As far as earnings surprises are concerned, the Permian Basin pure play has a good record, having gone past the Zacks Consensus Estimate thrice in the last four reports. This is depicted in the graph below.

Diamondback Energy, Inc. Price and EPS Surprise


Diamondback Energy, Inc. Price and EPS Surprise | Diamondback Energy, 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 Diamondback 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 Diamondback 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 +1.10%. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: Diamondback 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 should lead to solid earnings growth. The 2018 purchases of Energen Corporation and Ajax Resources has transformed Diamondback into one of the leading Permian Basin oil producers. The combined company owns around 394,000 net acres in the Delaware and Midland regions with more than 7,000 drilling locations and production of 215,000 barrels of oil equivalent per day.

Our model estimates fourth-quarter production volumes to average 171,500 barrels of oil equivalent per day (BOE/d), improving from 122,975 BOE/d in the third quarter and 85% above the year-ago output of 92,872 BOE/d. The significant production growth reflects last year’s twin acquisitions of Energen Corporation and Ajax Resources.

Other Stocks to Consider

Diamondback Energy 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 - Free Report) 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. (CJ - Free Report) has an Earnings ESP of +26.26% and a Zacks Rank #3. The company is slated to release earnings on Feb 21.

Concho Resources Inc. (CXO - Free Report) has an Earnings ESP of +0.25% and a Zacks Rank #3. The company is slated to release earnings on Feb 19.

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