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Will Output Growth Propel Cabot's (COG) Earnings in Q2?

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Cabot Oil & Gas (COG - Free Report) is scheduled to release second-quarter 2019 results on Jul 26, before the opening bell. The current Zacks Consensus Estimate for the quarter to be reported is a profit of 33 cents on revenues of $497 million.

In the last reported quarter, the Houston, TX-based domestic energy explorer beat the consensus mark by 8.96% on the back of lower average unit costs, and price and output gains.

As far as earnings surprises are concerned, the exploration and production firm has a dismal record, having surpassed the Zacks Consensus Estimate just once in the last four quarters. This is depicted in the graph below.

Cabot Oil & Gas Corporation Price and EPS Surprise

 

Cabot Oil & Gas Corporation Price and EPS Surprise

Cabot Oil & Gas Corporation price-eps-surprise | Cabot Oil & Gas Corporation Quote

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

Which Way are Top and Bottom-Line Estimates Headed?

The Zacks Consensus Estimate for second-quarter earnings per share has been downwardly revised by 2 cents in the past seven days to 33 cents. Nonetheless, it indicates an increase from the year-ago reported earnings of 13 cents per share. The Zacks Consensus Estimate for revenues is pegged at $497 million, suggesting an improvement from $453 million reported in the prior-year quarter.

Factors at Play

Cabot’s acreage in the Marcellus shale play positions it for significant output growth in the to-be-reported quarter. The Zacks Consensus Estimate for equivalent production for second-quarter 2019 is pegged at 213 billion cubic feet (Bcf) of natural gas, higher than 172.4 Bcf in the year-ago period.

Natural gas realizations (including the impact of its hedging program) are also expected to increase y/y, which may buoy the company’s upcoming results. The Zacks Consensus Estimate for average natural gas price realization for second-quarter 2019 is $2.23 per thousand cubic feet, up from $2.15 reported a year earlier. 

However, natural gas realizations are likely to decline sequentially, as the commodity remains in the bearish territory amid growing fears that soaring production is outpacing demand growth, which may lead to weaker results on a sequential basis.

What Our Model Says

Our proven model does not conclusively predict that Cabot will beat the Zacks Consensus Estimate in the quarter to be reported. This is because it doesn’t have the right combination of the two key ingredients — 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 -2.11%.

Zacks Rank: Cabot currently has a Zacks Rank #3 (Hold), which increases the predictive power of ESP. But we also need to have a positive Earnings ESP to be confident of a positive surprise.

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.

Stocks to Consider

While earnings beat looks uncertain for Cabot, here are some companies from the energy space that you may want to consider on the basis of our model, which shows that these have the right combination of elements to post an earnings beat in the upcoming quarterly reports:

TransCanada Corporation (TRP - Free Report) has an Earnings ESP of +0.34% and a Zacks Rank #3. The firm is expected to release second-quarter earnings on Aug 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Royal Dutch Shell plc (RDS.A - Free Report) has an Earnings ESP of +0.55% and a Zacks Rank #3. The company is anticipated to release second-quarter earnings on Aug 1.

Enbridge Inc. (ENB - Free Report) has an Earnings ESP of +8.88% and a Zacks Rank #3. The company is anticipated to release quarterly earnings on Aug 2.

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