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Factors Setting the Tone for Apache's (APA) Q4 Earnings

Zacks Equity Research

Apache Corporation APA is set to release fourth-quarter 2018 results after the closing bell on Feb 27.

The Houston, TX-based oil and gas finder delivered better-than-expected results in the last reported quarter, owing to higher oil realizations and strong volumes from the key Permian Basin region.

As far as earnings surprises are concerned, Apache is on an excellent footing, having surpassed the Zacks Consensus Estimate in each of the last four quarters, with average of 42.40%. This is depicted in the graph below:

Apache Corporation Price and EPS Surprise

Apache Corporation Price and EPS Surprise | Apache Corporation Quote

Investors are keeping their fingers crossed and hoping that the company can continue winning ways by surpassing earnings estimates this time around too. However, our model does not predict an earnings beat for Apache in the fourth quarter of 2018.

Let’s see which way are top and bottom-line estimates headed this time.

The Zacks Consensus Estimate for fourth-quarter earnings has been downwardly revised by 9 cents over the past 30 days to 25 cents. The EPS estimate reflects a decrease of 24.2% from the year-ago figure of 33 cents. Nonetheless, the Zacks Consensus Estimate for revenues is pegged at $1,800 million compared with $1,586 million recorded in the prior-year quarter.

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

Factors at Play

Notably, the Zacks Consensus Estimate for the company’s daily production is currently pegged at 498 thousand oil-equivalent barrels (MBOE), up from 476 MBOE and 440 MBOE reported in the last reported quarter and the year-ago period, respectively.

While estimates for higher y/y output bode well for this upstream player, we remain a bit concerned about lower oil price realizations, mainly in the United States, which may dent overall revenues. Notably, the company estimates crude price in the United States to average $51.85 per barrel, lower than the prior-year level of $53.40. However, it expects international oil price to average $63.69 per barrel in the to-be-reported quarter, higher than the year-ago period’s $61.71.

Whether lower price realizations in the United States will be able to offset higher production volumes along with pricing gains in the international market can be seen when the company will announce quarterly financial results.

What Does the Zacks Model Unveil?

Our proven model does not conclusively show that Apache is likely to beat the Zacks Consensus Estimate in the fourth quarter. This 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. Unfortunately, that is not the case here as elaborated below.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is pegged at -36.31%. This is because the Zacks Consensus Estimate of 25 cents is pegged higher than the Most Accurate Estimate of 16 cents a share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Apache currently carries a Zacks Rank #3. Though a Zacks Rank of 3 increases the predictive power of ESP, its 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.

Stocks to Consider

Here are some firms from the energy space that you may want to consider on the basis of our model, which shows that these have the right combination of elements to post an earnings beat in the to-be-reported quarter:

Denbury Resources Inc. DNR has an Earnings ESP of +2.86% and a Zacks Rank #3. The company is anticipated to release quarterly earnings on Feb 27. You can see the complete list of today’s Zacks #1 Rank stocks here.

Southwestern Energy Company SWN has an Earnings ESP of +6.06% and a Zacks Rank #3. The company is expected to release quarterly earnings on Feb 28.

Par Pacific Holdings, Inc. PARR has an Earnings ESP of +18.87% and a Zacks Rank #2. The company is expected to release quarterly numbers on Mar 5.

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