Will Commodity Prices Drag Down Apache (APA) Q3 Earnings?
Domestic oil and gas explorer Apache Corp. (APA) is set to release its third-quarter 2014 results before the opening bell on Thursday, Nov 6.
In the preceding three-month period, Apache delivered a 0.00% earnings surprise amid strong North American liquids production growth and higher commodity prices, offset by asset sales. Let’s see how things are shaping up for this announcement.
Factors to Consider This Quarter
With 60% of its production being oil-weighted, the commodity’s price tumble over the last three months is expected to drag down earnings for Apache.
The company is not free from the effects of natural gas price fluctuations as well. The sharp volatility in the commodity’s realizations during the to-be-reported quarter may also play spoilsport.
Finally, Apache’s asset sales in several regions may lower its production. Earlier this year, the company completed the sale of its interests in deepwater Gulf of Mexico projects to mineral explorer Freeport-McMoRan Copper & Gold Inc.’s (FCX) oil and gas subsidiary for $1.4 billion.
Earnings Whispers?
Our proven model does not conclusively show that Apache is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 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 $1.36, while the Zacks Consensus is higher at $1.40. This results in an ESP of -2.86%.
Zacks Rank #3 (Hold): Apache carries a Zacks Rank #3, which when combined with a negative ESP makes surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
While earnings beat looks uncertain for Apache, here are some 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:
Pacific Coast Oil Trust (ROYT) has an Earnings ESP of +8.11% and holds a Zacks Rank #2 (Buy).
Crescent Point Energy Corp. (CPG) has an Earnings ESP of +20.93% and holds a Zacks Rank #2.
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