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Williams Companies (WMB) Q1 Earnings: What to Expect?

Energy infrastructure provider Williams Companies Inc. WMB is set to release first-quarter 2016 financial results after the closing bell on May 4, 2016.

The company reported an average negative earnings surprise of 18.8% for the last four quarters. In the preceding three-month period, the company posted a negative earnings surprise of 94.44%. Let’s see how things are shaping up for this announcement. 

Factors Likely to Influence this Quarter

Williams is a premier energy infrastructure provider in North America. The company boasts a widespread pipeline system and is one of the largest domestic natural gas transporters by volume. Hence, the company’s size and diversity are likely to drive earnings in the soon-to-be-reported quarter.

The company’s midstream assets, which are less sensitive to commodity price fluctuations, help it maintain a steady stream of revenues and cash flows in spite of low natural gas prices. 

Despite these positives, we remain concerned about the company’s high debt levels that make it vulnerable to an extended drop in commodity prices. The company’s exposure to the commodity price volatility has also taken a toll on its volume and distribution growth potential.

Moreover, the company’s keep-whole and percentage-of-liquids basis contracts for its midstream assets have exposed it to commodity price risk. If these contracts become less profitable, cash flow from Williams’ midstream business could be adversely affected, thereby leading to underperformance.

Earnings Whispers

Our proven model does not conclusively show that Williams Companies is likely to beat the Zacks Consensus Estimate this quarter. 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.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -30.00% for Williams Companies. This is because the Most Accurate estimate is pegged at 7 cents while the Zacks Consensus Estimate stands at 10 cents.

Zacks Rank: Williams Companies has a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, a negative ESP makes surprise prediction difficult.

Conversely, the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.  

Stocks to Consider

Though an earnings beat looks uncertain for Williams, here are some companies that 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 LP DPM has an Earnings ESP of +4.84% and a Zacks Rank #2. The company is slated to release earnings on May 4.

NGL Energy Partners LP NGL has an Earnings ESP of +1.96% and a Zacks Rank #2. The company is slated to release earnings on May 6.

Hercules Offshore, Inc. HERO has an Earnings ESP of +13.33% and a Zacks Rank #3. The company is slated to release earnings on May 4.

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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
 
HERCULES OFFSHR (HERO): Free Stock Analysis Report
 
WILLIAMS COS (WMB): Free Stock Analysis Report
 
DCP MIDSTREAM (DPM): Free Stock Analysis Report
 
NGL ENERGY PART (NGL): Free Stock Analysis Report
 
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