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Key Factors to Impact Concho Resources (CXO) Q2 Earnings

Zacks Equity Research

Concho Resources Inc. CXO is scheduled to release second-quarter 2019 results after the closing bell on Wednesday, Jul 31. The current Zacks Consensus Estimate for the quarter under review is a profit of 78 cents per share on revenues of $1.1 billion.

In the last reported quarter the Midland, TX-based oil and gas producer missed the consensus mark by 1.37% on weaker-than-anticipated realized prices and high operating costs.

As far as earnings surprises are concerned, the Permian-focused player has a mixed record, having gone past the Zacks Consensus Estimate twice in the last four reports. This is depicted in the graph below.

Concho Resources Inc. Price and EPS Surprise

 

Concho Resources Inc. Price and EPS Surprise

Concho Resources Inc. price-eps-surprise | Concho Resources Inc. Quote

Investors are keeping their fingers crossed and hoping that the company can surpass earnings estimate this time around. However, our model indicates that Concho Resources might not beat on earnings in the to-be-reported quarter.

Let’s delve deeper and find out the factors impacting the results.

Factors to Consider This Quarter

Two major areas of interest – output growth and oil price realizations – are sending mixed signals with regard to Concho Resources’ results in the upcoming quarter.

Our model estimates second-quarter production volumes to average 322,444 barrels of oil equivalent per day (Boe/d), down slightly from 328,491 BOE/d in the first quarter. However, volumes are likely to be 40.8% above the year-ago output of 228,958 BOE/d. The strong year-over-year production growth reflects the 2018 RSP Permian acquisition.

Meanwhile. analysts polled by Zacks envision realized crude prices to remain essentially unchanged year over year, which may limit the company’s profitability. The Zacks Consensus Estimate for the average crude price realization (with derivatives) in second quarter 2019 is $54 per barrel, flat from the year-earlier period but up from the $49.56 per barrel in the previous quarter. Importantly, Concho Resources’ output is heavily oil-weighted with liquids making up around 64% of the total production. Therefore, the company’s ‘oilier’ nature of its volume mix exposes it to the vagaries of crude sales price fluctuations.

What Does Our Model Say?

Our proven model too does not conclusively predict that Concho Resources will beat the Zacks Consensus Estimate this quarter. 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 -6.38%.

Zacks Rank: Concho Resources currently has a Zacks Rank #3 (Hold), which increases the predictive power of ESP. But we need to have a positive Earnings ESP to be sure of the 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 a negative estimate revision.

Stocks to Consider

While earnings beat looks uncertain for Concho Resources, here are some companies from the energy space you may want to consider on the basis of our model, which shows that they have the right combination of elements to post earnings beat this quarter:

Williams Companies WMB has an Earnings ESP of +4.29% and a Zacks Rank of 3. The firm is expected to release earnings on Jul 31. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Encana Corporation ECA has an Earnings ESP of +5.56% and is Zacks #3 Ranked. The company is anticipated to release earnings on Jul 31.

Independence Contract Drilling, Inc. ICD has an Earnings ESP of +18.18% and a Zacks Rank #3. The company is anticipated to release earnings on Aug 1.

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