Plains Exploration & Production Company is set to report its fourth-quarter results on Feb 21, 2013. Last quarter, the company’s reported earnings were in line with the Zacks Consensus Estimate. Let’s see how things are shaping up prior to this announcement.
Factors to Consider This Quarter
The year 2012 was volatile for the oil industry as the oil companies continued to face challenges from the rising utilization of alternate energy for power generation, higher competition from natural gas producers, production curtailment in the manufacturing sector and compliance with rising government rules, which increased operating costs. Like other oil producers, Plains Exploration & Production is experiencing a similar situation.
Plains Exploration & Production manages its commodity price risk by hedging production. This may, however, prevent the company from realizing maximum prices if the market price rises above the current hedged prices. Derivative contracts also expose it to financial losses, if there is a delay in production or a failure on the part of the counterparty to satisfy its obligations.
However, we are optimistic about the company’s strong balance sheet and liquidity position, asset rebalancing strategy, and development of onshore assets in several locations, which may boost margins.
Our proven model does not conclusively show that Plains Exploration & Production is likely to beat earnings this quarter. That is because a stock needs to have both a positive Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank of #1, 2 or 3 for this to happen. This is not the case here as you will see below.
Negative Zacks ESP: This is because the Most Accurate estimate stands at 53 cents, while the Zacks Consensus Estimate is pegged at 48 cents. This comes to a difference of -9.43%.
Zacks Rank #3 (Hold): Plains Exploration & Production with Zacks Rank #3 (Hold), enhances the possibility of an earnings surprise. However, the Zacks Rank #3 when combined with a negative ESP makes surprise prediction difficult. We also caution against stocks with Zacks Ranks #4 and 5 (Sell rated stocks) going into the earnings announcement, especially when the company is experiencing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies from the sector you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Carrizo Oil & Gas Inc. (CRZO - Free Report) has earnings ESP of +5.71% and Zacks Rank #3 (Hold)
EPL Oil & Gas, Inc. has earnings ESP of +25.53% and Zacks Rank #3 (Hold)
EXCO Resources Inc. has earnings ESP of +18.75% and Zacks Rank #3 (Hold)