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Can Chevron (CVX) Turn Around This Earnings Season?

Zacks Equity Research

U.S. energy behemoth Chevron Corporation (CVX) is set to report first-quarter 2014 results before the opening bell on May 2. Chevron has failed to beat estimates in the past three quarters with an average negative earnings surprise of 3.87%.  Let’s see how things are shaping up prior to this announcement.

Factors to Consider This Quarter

Earlier in the month, the San Ramon, CA-based company issued an interim update for first quarter 2014 whereby it anticipated earnings to be sequentially lower. Chevron stated that it expects huge currency conversion expenses and asset impairment charges to hamper the results.

The company stated that first quarter production have been hampered by increased downtime in several regions, as a result of unfavorable weather. Consequently, total production is expected to fall below the year-ago quarter level. However, the decline should be partially offset by higher output from the LNG facility in Angola.

Chevron also mentioned that for the first two months in 2014, liquid realization was lower than the first quarter of 2013. International natural gas realizations was weak as well, though, U.S. natural gas realizations improved year over year.

Chevron’s downstream operations are also expected to post weak results, hampered by maintenance activities at multiple refineries. Following these negative announcements, the majority of brokerage firms have lowered their estimates.

Earnings Whispers

Our proven model does not conclusively show that Chevron is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here.  

Negative Zacks ESP: This is because the Most Accurate estimate stands at $2.47 per share while the Zacks Consensus Estimate is $2.53, resulting in a -2.37% ESP.

Zacks Rank #3 (Hold): Chevron’s Zacks Rank #3 when combined with a negative ESP lowers the predictive power and makes surprise prediction difficult.

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

Other Stocks to Consider                       

Here are some other companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:

Callon Petroleum Co. (CPE), earnings ESP of +25.00% and Zacks Rank #2 (Buy). The company is slated to release first quarter earnings on May 8.

Canadian Natural Resources Ltd (CNQ), earnings ESP of +8.22% and Zacks Rank #2. The company is expected to release earnings after the closing bell on May 8.

Abraxas Petroleum Corp. (AXAS), earnings ESP of +20.00% and Zacks Rank #2. The company is scheduled to release earnings on May 8.

Read the Full Research Report on CVX
Read the Full Research Report on CNQ
Read the Full Research Report on AXAS
Read the Full Research Report on CPE

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