Noble Corp (NE) Poised to Beat Earnings Estimates in Q4 - Analyst Blog
Offshore drilling contractor, Noble Corporation (NE) is set to release fourth-quarter 2014 financial results after the closing bell on Feb 4. Let’s see how things are shaping up prior to the announcement.
In the last quarter, the company’s earnings of 57 cents per share came above the Zacks Consensus Estimate of 54 cents. The results, however, decreased from the year-earlier adjusted earnings of 85 cents. Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Noble is likely to beat earnings estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Noble has the right combination of the two key components.
Zacks ESP: Noble currently has an Earnings ESP of +6.12%. This is because the Most Accurate estimate stands at 52 cents, while the Zacks Consensus Estimate is pegged at 49 cents.
Zacks Rank: Noble carries a Zacks Rank #3 (Hold).
Noble’s Zacks Rank #3 and ESP of +6.12% make us reasonably confident of a positive earnings beat.
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
What's Driving the Better-than-Expected Earnings?
The offshore drilling industry faced intense competition with multiple firms chasing a single contract. On top of that, there was an oversupply of offshore drilling rigs that lowered the day rate. However the company prudently has 79% of all rig days committed for the fourth quarter, including both floater and jackup units.
Moreover, for the October-December period, crude prices steadily fell owing to high crude stockpiles, as imports increased and refiners scaled down their utilization rates. The price of West Texas Intermediate (WTI) crude had slumped to the darker side of $50 per barrel and is expected to remain so in the near term. The southward march in crude prices provided little intensive for oil exploration and production companies to hire offshore drilling rigs. This amplified the rig oversupply concern. However Noble’s overall total order backlog at the end of the third quarter was approximately $10.6 billion. This, we hope, would be enough to tide over a market troubled by falling dayrates.
Other Stocks to Consider
Here are some other companies to consider as our model shows that these too have the right combination of elements to post an earnings beat this quarter.
Seadrill Partners LLC (SDLP) with an Earnings ESP of +10.53% and a Zacks Rank #2 (Buy). The partnership is expected to release earnings on Feb 24.
Valero Energy Partners LP (VLP) with an Earnings ESP of +3.33% and a Zacks Rank #2. The company is slated to release earnings on Feb 5.
Tesoro Corporation (TSO) with an Earnings ESP of +1.40% and a Zacks Rank #2. The company is likely to release earnings on Feb 11.
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