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What's in Store for Approach Resources (AREX) in Q2 Earnings?

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Approach Resources, Inc. (AREX - Free Report) is scheduled to release second-quarter 2019 results on Aug 8, after the market closes.

The Fort Worth, TX-based upstream company beat the Zacks Consensus Estimate in three of the prior four quarters, the average being 12.7%.

Approach Resources Inc. Price and EPS Surprise

 

Approach Resources Inc. Price and EPS Surprise

Approach Resources Inc. price-eps-surprise | Approach Resources Inc. Quote

Let’s see how things are shaping up for this announcement.

Which Way are Estimates Treading?

Let’s take a look at estimate revisions to get a clear picture of what analysts are thinking about the company before the earnings release.

The Zacks Consensus Estimate for second-quarter loss is pegged at 13 cents, which has seen no upward movement but one downward revision in the past 30 days. This figure indicates a decline of 85.7% from the year-ago reported figure.

The Zacks Consensus Estimate for revenues is pegged at $20.6 million for the to-be-reported quarter, indicating a fall of 32.1% from the year-ago reported figure.

Factors at Play

Approach Resources has low-cost and long-lived unconventional oil and natural gas reserves in the prolific Permian Basin, enabling it to capture high returns, which will reflect in the to-be-reported quarter.

The company’s total production comprised 60% liquids and 40% natural gas in first-quarter 2019. Of the total production, 24% was crude oil. Notably, natural gas prices in second-quarter 2019 were lower than the year-ago period. In April, May and June of 2019, average gas price were $2.65, $2.64 and $2.40 per million Btu, respectively, per the U.S. Energy Information Administration. In comparison, gas prices averaged $2.80, $2.80 and $2.97 per million Btu in the year-ago respective months.

Moreover, average crude prices plunged significantly in second-quarter 2019 from the year-ago period. The decline in hydrocarbon prices may hurt the company’s businesses. As such, the company’s bottom line is expected to fall nearly 86% year over year.

What Our Model Unveils

Our proven model does not conclusively predict that Approach Resources is likely to beat the Zacks Consensus Estimate in the quarter to be reported. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Earnings ESP: Earnings ESP represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate. The company has an Earnings ESP of 0.00% as the Most Accurate Estimate and the Zacks Consensus Estimate are both pegged at loss of 13 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Approach Resources currently carries a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, a 0.00% ESP makes surprise prediction difficult.

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

Energy Stocks With Favorable Combination

Here are some companies from the energy space which, according to our model, have the right combination of elements to post an earnings beat in the upcoming quarterly results.

Cheniere Energy, Inc. (LNG - Free Report) is set to report second-quarter 2019 earnings on Aug 8. The stock has an Earnings ESP of +88.46% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Roan Resources, Inc. (ROAN - Free Report) has an Earnings ESP of +14.71% and is a #3 Ranked player. The company is slated to release second-quarter 2019 earnings on Aug 7.

Sunoco LP (SUN - Free Report) is set to report second-quarter 2019 earnings on Aug 7. The stock has an Earnings ESP of +14.64% and a Zacks Rank #2.

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