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Factors to Consider Ahead of Diamondback (FANG) Q2 Earnings

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Diamondback Energy, Inc. (FANG - Free Report) is scheduled to release second-quarter 2019 results after the closing bell on Aug 6. The current Zacks Consensus Estimate for the quarter to be reported is earnings per share of $1.74 on revenues of $1.02 billion.

In the last reported quarter, the Midland, TX-based oil and gas producer beat the consensus mark by 2.21% on production gains. As far as earnings surprises are concerned, the Permian Basin pure play has a mixed record, having outpaced the Zacks Consensus Estimate twice in the last four quarters. This is depicted in the graph below:

Diamondback Energy, Inc. Price, Consensus and EPS Surprise


Diamondback Energy, Inc. Price, Consensus and EPS Surprise

Diamondback Energy, Inc. price-consensus-eps-surprise-chart | Diamondback Energy, Inc. Quote

While investors are keeping their fingers crossed and anticipating that Diamondback will surpass earnings estimates this time around, our model does not predict the same.

Notably, another Permian player Pioneer Natural Resources (PXD - Free Report) is expected to post second-quarter results on Aug 6. Meanwhile, two other Permian biggies — namely Apache Corporation (APA - Free Report) and Concho Resources (CXO - Free Report) — reported earnings beat and miss, respectively, in their latest quarterly release. While both the firms bore the brunt of weaker y/y oil and gas prices, Apache was able to more than offset pricing woes through production gains.  

Which Way are Top and Bottom-Line Estimates Trending?

The Zacks Consensus Estimate for revenues is pegged at $1,024 million, indicating an improvement from $526 million recorded in the prior-year quarter. The Zacks Consensus Estimate for second-quarter earnings of $1.74 per share also suggests growth from $1.59 recorded in the corresponding quarter of the prior year. However, earnings estimates for the to-be-reported quarter have been revised downward by 3 cents in the past seven days.

Let’s delve deeper into the factors that are likely to influence Diamondback’s second-quarter earnings.

Factors Setting the Tone

Last year’s twin acquisitions of Energen Corporation and Ajax Resources transformed Diamondback into one of the leading Permian Basin oil producers. This is likely to buoy the firm’s output growth. As such, the company’s second-quarter production volumes are estimated to average 277,194 barrels of oil equivalent per day (BOE/d), suggesting an increase of 146.2% from the year-ago output of 112,592 BOE/d.

However, realized crude prices are expected to decline from the year-ago level, which may impact the company’s upcoming results. The Zacks Consensus Estimate for average crude price realization for second-quarter 2019 is $54 per barrel, implying a decline from $62 a year ago. The Zacks Consensus Estimate for natural gas prices is pegged at $1.04 per thousand cubic feet, pointing to a decrease from the year-ago realization of $1.54.

While the significant output growth is expected to buoy Diamondback’s second-quarter 2019 earnings, weaker y/y commodity prices may dent overall results.

What Our Model Says

Our proven model does not conclusively predict that Diamondback will beat the Zacks Consensus Estimate in the to-be-reported quarter. 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 0.00%.

Zacks Rank: Diamondback currently has a Zacks Rank #3, which increases the predictive power of ESP. But we also need to have a positive ESP to be sure of an earnings beat. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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