Natural gas exploration and production (E&P) company Encana Corporation (ECA) is scheduled to report its first-quarter 2013 results on Tuesday, Apr 23, before the opening bell.
In the fourth quarter 2012, Encana delivered a negative 3.12% earnings surprise, due to low natural gas volumes and hedging loss. Moreover, Encana delivered negative earnings surprises in 3 of the last 4 quarters, with an average miss of 261.96%. Let’s see how things are shaping up prior to this announcement.
Factors to Consider This Quarter
As is the case with other E&P companies, Encana’s results are directly exposed to oil and gas prices, which are inherently volatile and subject to complex market forces. Realized prices could differ significantly from our estimates, thereby affecting the company’s revenues, earnings and cash flows.
Additionally, with the growing popularity of renewable sources of energy such as wind and solar, the operators of natural gas resources are facing tough competition. Although expensive, many customers are opting this sustainable source of energy for its environmental friendly nature.
Although, Encana focuses on the prolific unconventional natural gas reservoirs throughout North America, the large scale development of these resources is technically challenging and capital intensive.
Our proven model does not conclusively show that Encana is likely to beat the Zacks Consensus Estimate in the first quarter. That is because a stock needs to have both a positive earnings Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. But this is not the case here as elaborated below.
Negative Zacks ESP:This is because the Most Accurate estimate stands at 3 cents while the Zacks Consensus Estimate is higher at 4 cents. This results in a difference of -25.0%.
Zacks Rank #3 (Hold): Encana’s Zacks Rank #3, however, increases the forecasting power of ESP. That said we also need to have a positive ESP to be confident of an earnings surprise call.
We caution against stocks with Zacks Rank #4 and 5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
Other Stocks to Consider
Here are some E&P companies you might want to consider on the basis of our model. These have the right combination of elements to post an earnings beat this quarter:
Epl Oil & gas Inc. (EPL)has an earnings ESP of +9.76% and a Zacks Rank #1 (Strong Buy).
Stone Energy Corp. (SGY) has an earnings ESP of +2.86% and a Zacks Rank #1 (Strong Buy).
Bill Barrett Corporation (BBG) has an earnings ESP of +50.0% and a Zacks Rank #2 (Buy).
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