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Will Output & Price Gains Boost Apache's (APA) Q1 Earnings?

Zacks Equity Research

Apache Corporation APA is set to release first-quarter 2019 results after the closing bell on May 1. The current Zacks Consensus Estimate for the quarter to be reported is a profit of eight cents per share on revenues of $1.65 billion.

The Houston, TX-based oil and gas finder recorded better-than-expected results in the last reported quarter on the back of strong production growth 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 34.11%. 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 topping earnings estimates this time around too. Encouragingly, our model too indicates that Apache might beat on earnings in the to-be-reported quarter.

Why a Likely Positive Surprise?

Our proprietary model shows that Apache is likely to beat earnings estimates in the to-be-reported quarter, as it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. 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 +12.55%. This is because the Most Accurate Estimate for earnings is pegged a penny above the Zacks Consensus Estimate of eight cents a share. A favorable Earnings ESP serves as a meaningful and leading indicator of a likely positive surprise.

Zacks Rank: Apache currently carries a Zacks Rank #2. A Zacks Rank #2, when combined with a positive ESP, makes us confident of an earnings beat.

Conversely, 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.

Factors Setting the Tone

Following the oil crash toward the end of 2018, WTI crude popped up to $60.55 a barrel in the March quarter of 2019, recording the fastest rate of oil price increase since a decade. Crude prices rebounded 30% in the first quarter, underpinned mainly by OPEC+ supply cuts and U.S. sanctions against Venezuela and Iran, which bode well for upstream players like Apache. 

In addition to the favorable prices of crude (which constitutes majority of the company’s output), Apache is also expected to realize benefits from production growth, especially in the Permian Basin, which now constitutes more than half of the total output. While ramped-up operations in the Alpine High region of the Permian Basin are certainly going to aid Apache’s upcoming results, the company’s considerable acreage in Egypt and North Sea are also expected to step up the production rate in the to-be-reported quarter. Notably, late last year, the firm commenced production from Garten development in the North Sea, which is likely to boost first-quarter output levels.

Hence, we expect favorable crude prices and rising production volumes to buoy Apache’s upcoming results.

Other Stocks to Consider

Apache is not the only energy firm looking up this earnings season. Here are some other companies from the same space, which according to our model also have the right combination of elements to post an earnings beat in the to-be-reported quarter.

Abraxas Petroleum Corporation AXAS has an Earnings ESP of +133.33% and a Zacks Rank #3. The company is anticipated to release quarterly earnings on May 6.

C&J Energy Services, Inc. CJ has an Earnings ESP of +14.87% and a Zacks Rank #3. The company is expected to release quarterly earnings on May 7.

Comstock Resources Inc. CRK has an Earnings ESP of +11.95% and a Zacks Rank #2. The company is set to release first-quarter earnings on May 9. You can see the complete list of today’s Zacks #1 Rank stocks here.

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