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Can Concho Resources (CXO) Q1 Earnings Surprise?

Domestic oil and gas explorer Concho Resources Inc. CXO is set to release its first-quarter 2016 results after the closing bell on Wednesday, May 4.

In the preceding three-month period, the Midland, TX-based upstream player delivered a negative earnings surprise of 275.00% on oil’s protracted decline. As far as the earnings surprise history is concerned, the company has a good record: its beaten estimates in 3 of the last four quarters.

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

Factors to Consider This Quarter

Like any other energy player − primarily involved in exploration, development and production of crude oil − the fate of Concho Resources’ business is directly correlated with crude prices. Continued weakness in commodity prices has significantly affected the company’s revenues, earnings and cash flows.

However, efficiencies on the production front might be able to mitigate some of the damage. During the fourth quarter, Concho Resources’ average daily production jumped 15% from the year-ago quarter level to 144,000 barrels of oil equivalent - above the high-end of the company’s guidance. We expect the volume growth to continue in the to-be-reported quarter as well.

Moreover, Concho Resources has been able to reduce unit costs that will provide some buffer amid the tumbling commodity prices.

Earnings Whispers

Our proven model does not conclusively show that Concho Resources will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat consensus estimates. That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate both stand at breakeven.

Zacks Rank: Concho Resources has a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the company’s ESP of 0.00% 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.

Stocks to Consider

While earnings beat looks uncertain for Concho Resources, here are some utilities you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:

DCP Midstream Partners L.P. DPM has an Earnings ESP of +9.52% and a Zacks Rank #2. The company is expected to release earnings results on May 4.

Enable Midstream Partners L.P. ENBL has an Earnings ESP of +21.05% and a Zacks Rank #2. The company is anticipated to release earnings on May 4.

McDermott International Inc. MDR has an Earnings ESP of +100.00% and a Zacks Rank #3. The company is likely to release earnings on May 5.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
ENABLE MIDSTRM (ENBL): Free Stock Analysis Report
 
MCDERMOTT INTL (MDR): Free Stock Analysis Report
 
DCP MIDSTREAM (DPM): Free Stock Analysis Report
 
CONCHO RESOURCS (CXO): Free Stock Analysis Report
 
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