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Canadian Natural (CNQ) to Post Q4 Earnings: What's in Store?

Zacks Equity Research

Canadian Natural Resources Limited CNQ is scheduled to release fourth-quarter 2018 results on Mar 7, before the opening bell.

In the last reported quarter, the Canadian energy giant reported better-than-expected results owing to higher crude oil and NGLs output, along with improved-year-over year price realizations. Markedly, the company has a decent earnings surprise history, having surpassed earnings estimates in three of the last four quarters, with average positive surprise of 18.66%.

Canadian Natural Resources Limited Price and EPS Surprise

Canadian Natural Resources Limited Price and EPS Surprise | Canadian Natural Resources Limited Quote

Investors are keeping their fingers crossed and hoping that the company will surpass earnings estimates this time around too. However, our model is not indicative of an earnings beat for Canadian Natural in the to-be-reported quarter.

Let’s take a look at estimate revisions in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

The Zacks Consensus Estimate for fourth-quarter earnings has been downwardly revised by 8 cents over the past 30 days to 14 cents per share. This reflects about 62.2% decline from the year-ago quarter. The Zacks Consensus Estimate for revenues is pegged at $3.99 billion for the fourth quarter compared with $3.94 billion recorded in the prior-year period.

Let’s delve deeper into the factors that are likely to shape Canadian Natural’s earnings this season.

Factors at Play

Canadian Natural has a broad portfolio of low-risk exploration and development projects that yields long-term volume growth at above-average rates. The firm’s acquisition of stakes in the Athabasca Oil Sands project and Pelican Lake is buoying its operations. The ramp up of activities at its Horizon and AOSP oil sands mining facilities are also likely to boost revenues. Higher year-over-year expected volumes are likely to drive the performance of the company. Notably, Canadian Natural forecasted fourth-quarter liquids production (which constitutes the major portion of the company’s volumes) in the range of 801,000-849,000 barrels per day (Bbl/d), depicting an uptick from the year-ago level of 744,100 Bbl/d.

However, during fourth-quarter 2018, the WTI crude plunged from a multi-year high of $76.40 a barrel in early October to below $45 in late December amid supply glut, U.S.-Sino trade tensions, weakening demand outlook and concerns related to economic slowdown. Further, pipeline construction in Canada failed to keep pace with rising domestic crude volumes — the heavier sour variety churned out of the oil sands — resulting in infrastructural bottlenecks. Widening crude oil price differentials are likely to impact Canadian Natural’s results this time around.

Notably, other Canadian players like Suncor Energy SU, Imperial Oil Limited IMO and Cenovus Energy Inc. CVE also bore the brunt of declining oil prices in the fourth quarter, recording weaker y/y results. Further, turnaround activities at Ninian Central and Tiffany (in North Sea) and Côte d'Ivoire (offshore Africa) during the fourth quarter may lead to lost revenues in the quarter to be reported.

While we expect higher year-over-year output to aid the company in the fourth quarter, weak oil price realization may dent the company’s margins.

Earnings Whispers

Our proven model shows that Suncor is unlikely to beat estimates this earnings season. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.   

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -184.21%. This is because the Most Accurate Estimate stands at a loss of 12 cents a share whereas the Zacks Consensus Estimate is pegged at a profit of 14 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Canadian Natural currently carries a Zacks Rank #3. While the company’s favorable Zacks Rank increases the predictive power of ESP, a negative Earnings ESP makes surprise prediction difficult.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Note that we caution investors against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

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