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What's in the Cards for Ecopetrol (EC) in Q3 Earnings?

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Ecopetrol S.A. EC is expected to release third-quarter 2018 results on Oct 31.

In the last reported quarter, the upstream energy company’s earnings of 60 cents per share beat the Zacks Consensus Estimate of 58 cents. The company surpassed estimates in the trailing two quarters, delivering a positive earnings surprise of 17.9%.
 

Ecopetrol S.A. Price and EPS Surprise

 

Ecopetrol S.A. Price and EPS Surprise | Ecopetrol S.A. Quote

 

Let’s see how things are shaping up for this announcement.

Which Way are Estimates Trending?

Let’s have a look at the estimate revision trend to get a clear picture of what analysts are thinking about the company before earnings release.

The Zacks Consensus Estimate of 60 cents for the third quarter has seen one upward movement and a downward revision by firms in the past 30 days. It reflects an improvement of 252.9% from the year-ago quarter’s figure.

Further, the Zacks Consensus Estimate for third-quarter revenues is pegged at $5.9 billion, reflecting an improvement of 30% from the year-ago quarter’s figure.

Factors at Play

The commodity pricing scenario is expected to bring about substantial improvement in third-quarter 2018 results. Oil and gas prices were around $70 per barrel in all the three months. The average monthly price of West Texas Intermediate (WTI) crude per barrel for the month of July, August and September of 2018 was recorded at $70.98, $68.06 and $70.23, respectively, per the U.S. Energy Information Administration. These prices were considerably higher than the year-ago respective prices of $46.63, $48.04 and $49.82. Notably, oil prices were fueled by concerns over U.S. sanctions on Iran, OPEC’s efforts to tighten the market, supply bottlenecks in the United States and strong global demand.

The improvement in commodity prices from last reported quarter’s tally is likely to benefit upstream players like Ecopetrol.

However, rising costs are a concern for the company. Through the first-half of 2018, expenses related to hydrocarbon transport services surged almost 83%. If this trend continues through the third quarter, the bottom line  is likely to be dented.

While rising prices are expected to benefit third-quarter results, climbing costs can offset the upside.

What Does the Zacks Model Unveil?

Our proven model does not show that Ecopetrol is likely to beat the Zacks Consensus Estimate in the to-be-reported quarter. This is because a stock needs to have 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.

Earnings ESP: Ecopetrol has an ESP of -8.33% as the Most Accurate Estimate isat 55 cents, while the Zacks Consensus Estimate is pegged at 60 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Ecopetrol carries a Zacks Rank #2. Though a Zacks Rank of #2 increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Energy Stocks With Favorable Combination

Here are some companies from the energy space which, according to our model, have the right combination of elements to post an earnings beat in the quarter to be reported.

Enterprise Products Partners L.P. EPD, based in Houston, TX, is a leading midstream energy player in North America. The company has an Earnings ESP of +0.89% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Plano, TX-based Denbury Resources Inc DNR is an exploration and production (E&P) company engaged in the acquisition, development, operation and exploration of oil as well asnatural gas properties. The company has an Earnings ESP of +10.15% and a Zacks Rank #3.

Houston, TX-based Ensco plc ESV is a leading supplier of offshore contract drilling services to the oil and gas industry. The company has an Earnings ESP of +3.65% and a Zacks Rank #3.

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Enterprise Products Partners L.P. (EPD) : Free Stock Analysis Report
 
Ecopetrol S.A. (EC) : Free Stock Analysis Report
 
Ensco plc (ESV) : Free Stock Analysis Report
 
Denbury Resources Inc. (DNR) : Free Stock Analysis Report
 
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