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Approach (AREX) to Report Q4 Earnings: What's in the Cards?

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Approach Resources Inc. (AREX - Free Report) is expected to report fourth-quarter 2018 results soon.

In the last reported quarter, the company delivered an earnings surprise of 60%. Moreover, its average positive surprise in the trailing four quarters stands at almost 14%.

Let’s see how things are shaping up for this upstream energy entity prior to the announcement.    

Which Way Are Estimates Trending?

Let’s take a look at the estimate revision trend to get a clear picture of what analysts expect from the company this earnings season.

The Zacks Consensus Estimate of a loss of 5 cents for the fourth quarter has been stable over the past seven days, reflecting 28.6% year-over-year growth for the company’s bottom line.  

Further, the Zacks Consensus Estimate for fourth-quarter revenues is pegged at $30.2 million, indicating a 6.1% rise from the year-ago quarter’s figure.

Factors to Consider

Through fourth-quarter 2018, the Henry Hub Natural Gas Spot average monthly prices traded at $3.28 per Million Btu, $4.09 per Million Btu and $4.04 per Million Btu, respectively, per the U.S. Energy Information Administration. The monthly average prices were higher than the respective year-ago prices of $2.88, $3.01 and $2.82.

Since a majority of Approach Resources’ production comprises natural gas, the favorable pricing scenario of the commodity is likely to aid the company’s growth. Other leading natural gas producers in the United States that beat the Zacks Consensus Estimate of earnings in the December quarter are Exxon Mobil Corporation (XOM - Free Report) and BP plc (BP - Free Report) .

Moreover, Approach Resources is expecting its lease operating expense (LOE) to be lower in the fourth quarter, boosting its bottom-line improvement in turn.  

However, the pipeline bottleneck problem in Permian may hurt the company’s operations since the upstream energy player holds 165,000 gross acres in the prolific basin.

Earnings Whispers

Our proven model does not conclusively show that Approach Resources is likely to beat on earnings this season. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.  

Earnings ESP: Approach Resources has an Earnings ESP of 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate stand at a loss of 5 cents each. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter

Zacks Rank: Approach Resources carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% Earnings ESP makes surprise prediction difficult for the stock this reporting cycle.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions.

Stock to Consider

Though an earnings beat looks uncertain for Approach Resources, here is an energy firm that you may want to consider on the basis of our quantitative model. The stock has the right combination of elements to beat estimates this to-be-reported quarter:

EP Energy Corporation (EPE - Free Report) , an upstream energy firm, has an Earnings ESP of +17.41% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

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