Domestic energy explorer Cabot Oil & Gas Corp. (COG) is set to release its first-quarter 2013 results on Wednesday, Apr 24.
In the preceding three-month period, Cabot delivered a positive 14.29% earnings surprise – the second outperformance in succession – helped by higher volumes and crude oil prices. Let’s see how things are shaping up prior to this announcement.
Factors to Consider This Quarter
Cabot’s high natural gas exposure raises its sensitivity to gas price fluctuations, compared to its more-diversified independent peers with higher oil production. While cold winter weather across most parts of the country and flat production volumes have boosted natural gas prices in recent times, the onset of summer is likely to test the commodity prices once more. This is likely to affect the company’s earnings and cash flows.
Being a relatively small player, Cabot lacks the financial resources of larger industry giants. As such, during the current prolonged credit crunch, the company is forced to spend within its internal cash generation. This may prove detrimental to its growth plans and lower its results.
Our proven model does not conclusively show that Cabot is likely to beat the Zacks Consensus Estimate in the first quarter. That is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1 (Strong Buy) or at least Zacks Rank #2 (Buy) or Zacks Rank #3 (Hold) for this to happen. Unfortunately this is not the case here as elaborated below.
Negative Zacks ESP: This is because the Most Accurate estimate stands at 25 cents, while the Zacks Consensus is higher at 26 cents. This results in a difference of -3.85%.
Zacks Rank #3 (Hold): Cabot’s Zacks Rank #3 (Hold), however, increases the predictive power of ESP. That said, we also need to have a positive ESP to be confident of an earnings surprise call.
We caution against stocks with Zacks Rank #4 and 5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
Stocks to Consider
Here are some energy firms 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:
Exterran Partners L.P. (EXLP), Earnings ESP of +4.35% and Zacks Rank #1 (Strong Buy).
EPL Oil & Gas Inc. (EPL) , Earnings ESP of +12.50% and Zacks Rank #1 (Strong Buy).
SemGroup Corp. (SEMG), Earnings ESP of +28.95% and Zacks Rank #1 (Strong Buy).
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