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Can High Output Aid Apache (APA) Q2 Earnings Amid Weak Price?

Zacks Equity Research

Apache Corporation APA is set to release second-quarter 2019 results on Jul 31, after the closing bell. The current Zacks Consensus Estimate for the quarter to be reported is a profit of 8 cents on revenues of $1.61 billion.

The Houston, TX-based upstream player came up with better-than-expected results in the last reported quarter on the back of record Permian output.The bottom line, however, declined from the year-ago level of 32 cents owing to lower commodity price realizations.

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 31.12%. This is depicted in the graph below:

Apache Corporation Price and EPS Surprise

Apache Corporation Price and EPS Surprise

Apache Corporation price-eps-surprise | Apache Corporation Quote

Investors are keeping their fingers crossed and hoping that the company can continue winning ways by topping earnings estimates this time around too. However, our model indicates that Apache might not beat on earnings in the to-be-reported quarter.

Which Way are Top and Bottom-Line Estimates Headed?

The Zacks Consensus Estimate for second-quarter earnings per share has been downwardly revised by 6 cents in the past seven days to 8 cents. This compares unfavorably with the year-ago reported earnings of 50 cents per share. The Zacks Consensus Estimate for revenues is pegged at $1,610 million, suggesting a decline from $1,929 million reported in the prior-year quarter.

Factors at Play

The Zacks Consensus Estimate for second-quarter output is pegged at 469,000 barrels of oil equivalent per day (Boe/d), higher than the year-ago level of 464,000 Boe/d.Apache is expected to realize benefits from production growth, especially in the Permian Basin, which now constitutes more than half of the total output. Ramped-up operations in the Alpine High region of the Permian Basin are certainly going to aid the upcoming results. The company’s considerable acreage in Egypt and North Sea is expected to step up the production rate in the to-be-reported quarter. 

While output growth will drive the firm’s performance in the to-be-reported quarter, weaker y/y commodity prices are likely to limit earnings. Rising stock inventories, intensifying trade tensions and slowdown of global economy weighed on oil, gas and natural gas liquids prices during the quarter, which may hurt Apache’s overall results. Notably, the company estimates realized U.S. and international oil prices for second-quarter 2019 to be $57.25 and $68.50 a barrel, lower than the year-ago figures of $63.27 and $73.78, respectively. The Zacks Consensus Estimate for gas and NGL prices for the to-be-reported quarter is pegged at $1.63 per thousand cubic feet and $21.49 a barrel, lower than the year-ago level of $2.50 and $26.64, respectively.

What Our Model Says

Our proven model does not conclusively predict that Apache will beat the Zacks Consensus Estimate in the quarter to be reported. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

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, is -62.48%. This is because the Zacks Consensus Estimate for earnings is pegged at 8 cents, which is 5 cents higher than the Most Accurate Estimate.

Zacks Rank: Apache currently has a Zacks Rank #3, which increases the predictive power of ESP. But we also need to have a positive Earnings ESP to be confident of a positive surprise.

Note that we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

While earnings beat looks uncertain for Apache, here are some companies 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 upcoming quarterly reports:

Holly Energy Partners, L.P. HEP has an Earnings ESP of +1.18% and carries a Zacks Rank #2 (Buy). The partnership is anticipated to release second-quarter 2019 earnings on Jul 31. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

TransCanada Corporation TRP is set to report second-quarter 2019 earnings on Aug 1. The stock has an Earnings ESP of +0.34% and a Zacks Rank #3.

Enbridge Inc. ENB is set to report second-quarter 2019 earnings on Aug 2. The stock has an Earnings ESP of +8.88% and a Zacks Rank #3.

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