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Key Factors to Impact Concho Resources' (CXO) Q1 Earnings

Nilanjan Choudhury

Concho Resources Inc. CXO is scheduled to release first-quarter 2019 results after the closing bell on Tuesday, Apr 30. 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 preceding three-month period, the Midland, TX-based oil and gas producer missed the consensus mark by 14.6% on weaker-than-anticipated output and realized prices.

As far as earnings surprises are concerned, the Permian-focused player has a good record, having gone past the Zacks Consensus Estimate thrice of 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. Quote

Investors are keeping their fingers crossed and hoping that the company can surpass earnings estimate this time around too. 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.

During the fourth quarter earnings release, the company lowered its 2019 capital expenditure forecast by 17% and slashed its oil production growth guidance to 15% (versus prior forecast of 25%) for the same period.   

Consequently, our model estimates first-quarter production volumes to average 306,749 barrels of oil equivalent per day (Boe/d), down slightly from 307,097 BOE/d in the fourth quarter. However, volumes are likely to be 34.6% above the year-ago output of 227,930 BOE/d. The strong year-over-year production growth reflects the 2018 RSP Permian acquisition.

Analysts polled by Zacks also envision realized crude prices to edge down, which may further impact the company’s results. The Zacks Consensus Estimate for the average crude price realization (with derivatives) in first quarter 2019 is $50 per barrel, lower than $53 a year earlier and $51 per barrel in the previous quarter. Importantly, Concho Resources’ output is heavily oil-weighted with liquids making up around 65% 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 -6.57%.

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:

Cabot Oil & Gas Corporation COG has an Earnings ESP of +2.14% and a Zacks Rank #2 (Buy). The firm is expected to release earnings on Apr 26. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apache Corporation APA has an Earnings ESP of +6.67% and a Zacks Rank #2. The company is anticipated to release earnings on May 1.

Devon Energy Corp. DVN has an Earnings ESP of +7.80% and a Zacks Rank #2. The company is anticipated to release earnings on Apr 30.

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Concho Resources Inc. (CXO) : Free Stock Analysis Report
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