Can High Output Aid Cimarex Energy (XEC) this Earnings? - Analyst Blog
We expect domestic oil and gas explorer Cimarex Energy Co. XEC to beat expectations when it reports second-quarter 2015 results after the closing bell on Tuesday, Aug 4.
In the preceding three-month period, the Denver, CO-based firm delivered a negative earnings surprise of 5.71% due to the challenging environment posed by the steep drop in commodity prices throughout the quarter.
Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Cimarex Energy is likely to beat earnings in the to-be-reported quarter because it has the right combination of two key ingredients.
Zacks ESP: Earnings ESP for this company stands at +50.00%. This is because the Most Accurate estimate stands at a loss of 6 cents, whereas the Zacks Consensus Estimate is pegged lower at a loss of 12 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Cimarex Energy carries a Zacks Rank #3 (Hold) which, when combined with +50.00% ESP, makes us confident of an earnings beat.
Note that stocks with Zacks Ranks #1, 2 or 3 have a significantly higher chance of beating earnings. On the other hand, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
What is Driving the Better-Than-Expected Earnings?
As is the case with other oil and gas producers, Cimarex Energy’s revenues/earnings have borne the brunt of the freefall in realized prices over the past 12 months. However, the company has come up with certain strategy initiatives to overcome the industry-wide slump and outperform earnings estimates in the second quarter.
Firstly, with an aggressive cost reduction program, Cimarex Energy is looking to shore up its margins even in this weak oil and gas pricing environment. As part of this strategy, the company has embarked on a policy to minimize service and lease operating costs.
Secondly, Cimarex Energy has zeroed its focus on the core Cana-Woodford shale and the emerging Meramec plays, which will help it to strengthen the balance sheet through operational efficiencies and new technology applications.
Finally, Cimarex Energy is set to exhibit strong production growth in the second quarter. During the first quarter, the company’s total production of crude oil and natural gas improved 28% from the year-ago quarter level to 946.7 million cubic feet equivalent per day. Natural gas output increased 25.5% year over year while the company’s liquids operations registered 34.7% improvement in volumes. We expect the same for the to-be-reported-quarter as well.
Other Stocks to Consider
Cimarex Energy is not the only company looking up this earnings season. We see likely earnings beats coming from these energy firms as well:
CONE Midstream Partners L.P. CNNX has an Earnings ESP of +12.50% and a Zacks Rank #2 (Buy). The partnership is slated to release earnings on Aug 5.
Seadrill Partners LLC SDLP has an Earnings ESP of +12.28% and a Zacks Rank #2. The partnership is slated to release earnings on Aug 26.
Calumet Specialty Products Partners L.P. CLMT has Earnings ESP of +15.79% and a Zacks Rank #2. The partnership is likely to release earnings on Aug 5.
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