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Factors Likely to Shape Chevron (CVX) This Earnings Season

Zacks Equity Research

Chevron Corporation CVX is set to release fourth-quarter 2018 results on Feb 1, before the opening bell.

In the preceding three-month period, the integrated oil and gas company delivered better-than-expected results on the back of rising crude oil prices and record production. As far as earnings surprises are concerned, the San Ramon, CA-based U.S. oil major has a mixed record, having surpassed the Zacks Consensus Estimate twice in the last four quarters.  

Chevron Corporation Price and EPS Surprise

Chevron Corporation Price and EPS Surprise | Chevron Corporation Quote

Investors are keeping their fingers crossed and anticipating that Chevron will surpass earnings estimates this time around. Let’s see which way are the company’s top and bottom-line estimates headed this time.

The Zacks Consensus Estimate for revenues is pegged at $41.6 billion compared with $37.6 billion recorded in the prior-year quarter. The Zacks Consensus Estimate for fourth-quarter earnings of $1.97 per share also reflects a whopping year-over-year increase of 169.8%. However, earnings estimates for the to-be-reported quarter have been revised downward by nine cents in the past 30 days.

Let’s delve deeper into the factors that are likely to influence Chevron’s fourth-quarter earnings.

Factors at Play

While the company is expected to benefit from production growth, weakness in oil prices is likely to impact overall profits of the upstream segment.

Notably, fourth-quarter production volumes are estimated at 2,991 thousand oil-equivalent barrels per day (MBOE/d), improving from 2,956 MBOE/d in the third quarter and 2,740 MBOE/d a year ago. Chevron is likely to record higher output from its top-tier assets in Permian as well as Wheatstone LNG plant in Australia. As a matter of fact, the company’s third-quarter total production of crude oil and natural gas increased 8.8% from last year’s corresponding period to 2,956 MBOE/d — the highest quarterly volume in the company’s history.

Nonetheless, low oil prices are likely to drag down its upstream performance. Markedly, during fourth-quarter 2018, the West Texas Intermediate (WTI) crude plunged from a multi-year high of $76.40 a barrel in early October to below $45 in late December, per the U.S. Energy Information Administration. Oil prices took a beating during the quarter amid supply glut, U.S.-Sino trade tensions, weakening demand outlook and concerns related to economic slowdown.

Consequently, the Zacks Consensus Estimate for Chevron’s upstream segment’s fourth-quarter income is pegged at $4.7 billion, lower than the reported figure of $5.3 billion in the corresponding quarter of 2017.

Further, the downstream segment of the firm is expected to feel the heat of weak refining margins. We note that the current Zacks Consensus Estimate for the downstream unit’s quarterly income is $738 million, down 42.3% from a year ago.

Earnings Whispers

Our proven model also shows that Chevron 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 -7.57%. This is because the Most Accurate Estimate of $1.82 is pegged below the Zacks Consensus Estimate of $1.97. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

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.

Stocks to Consider

Though an earnings beat looks uncertain for Chevron, here are a few firms from the energy space that you may want to consider on the basis of our model. These have the right combination of elements to post an earnings beat in the quarter to be reported.

Philips 66 PSX has an Earnings ESP of +18.19% and holds a Zacks Rank #3. The firm is expected to report fourth-quarter earnings on Feb 8. You can see the complete list of today’s Zacks #1 Rank stocks here.

Williams Companies WMB has an Earnings ESP of +7.24% and a Zacks Rank #3. The firm is slated to release fourth-quarter earnings on Feb 13.

CSI Compressco LP CCLP has an Earnings ESP of +4.17% and a Zacks Rank #3. The company is expected to release third-quarter earnings on Feb 27.

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