Laredo Petroleum, Inc. LPI is set to release third-quarter 2020 results after the closing bell on Wednesday, Nov 4. The current Zacks Consensus Estimate for the to-be-reported quarter is a profit of $3.32 per share on revenues of $176.6 million.
Let’s delve into the factors that might have influenced the oil and gas producer’s performance in the September quarter. But it’s worth taking a look at Magellan Midstream’s previous-quarter performance first.
Highlights of Q2 Earnings & Surprise History
In the last-reported quarter, the Tulsa, OK-based upstream operator beat the consensus mark due to strong production. Laredo Petroleum had reported adjusted net income per share of $2.43, comfortably ahead of the Zacks Consensus Estimate of $1.52. However, the Permian Basin-focused company’s quarterly revenues of $110.6 million had come in below the Zacks Consensus Estimate of $185 million on lower oil price realizations.
As far as earnings surprises are concerned, Laredo Petroleum beat the Zacks Consensus Estimate in three of the last four quarters and missed in the other two, delivering an earnings surprise of 12.47%, on average. This is depicted in the graph below:
Laredo Petroleum, Inc. Price and EPS Surprise
Laredo Petroleum, Inc. price-eps-surprise | Laredo Petroleum, Inc. Quote
Trend in Estimate Revision
The Zacks Consensus Estimate for the third-quarter bottom line remained the same in the last seven days. However, the estimated figure indicates 21% deterioration year over year. The Zacks Consensus Estimate for revenues, meanwhile, suggests an 8.8% decline from the year-ago period.
Factors to Consider This Quarter
In the previous quarter, Laredo Petroleum experienced the wrath of declining oil prices, a trend that is most likely to have continued in the third quarter because of the continuation of the weak operating environment. Consequently, the Zacks Consensus Estimate for the third-quarter average sales price for oil (including the company’s substantial hedges) is pegged at $36.69 per barrel, indicating a decrease of 34.5% year over year. The year-over-year fall in realizations has most likely impacted Laredo Petroleum’s upstream earnings and cash flows, as 65% of its production is in the form of liquids. As it is, the company’s production is expected to decline sequentially with lower activity in the face of reduced realizations.
However, the company’s cost-reduction efforts have been encouraging. For 2020, Laredo Petroleum has trimmed its capital expenditure budget by almost 30% year over year to $340-$350 million after reckoning the ongoing crash in commodity prices. Moreover, for the second quarter, Laredo Petroleum was able to bring down its controllable cash costs to a peer-leading $3.42 per barrels of oil equivalent, while lowering operating costs by 16% from the year-ago period. The trend most likely continued in the third quarter of 2020 because of Laredo Petroleum’s operational efficiency and ability to reduce well cost. This, in turn, is expected to have lifted the company’s earnings and cash flows.
What Does Our Model Say?
The proven Zacks model does not conclusively show that Laredo Petroleum is likely to beat estimates in the third quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. But that’s not the case here.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, for this company is +3.33%.
Zacks Rank: Laredo Petroleum has a Zacks Rank #4 (Sell).
Stocks to Consider
While an earnings beat looks uncertain for Laredo Petroleum, here are some firms from the energy space that you may want to consider on the basis of our model:
DCP Midstream, LP DCP has an Earnings ESP of +4.77% and a Zacks Rank #1. The firm is scheduled to release earnings on Nov 4.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Sunoco LP SUN has an Earnings ESP of +1% and is Zacks #1 Ranked. The firm is scheduled to release earnings on Nov 4.
Comstock Resources, Inc. CRK has an Earnings ESP of +11.11% and is Zacks #3 Ranked. The firm is scheduled to release earnings on Nov 4.
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