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Output & Price Gains to Boost Concho's (CXO) Q1 Earnings

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Concho Resources Inc. CXO, a more than $22-billion market cap energy company, is set to release first-quarter 2018 financial results after the closing bell on May 1.

Last quarter, the company had delivered an impressive 43.48% positive earnings surprise on the back of higher commodity price realizations and robust production growth. As far as earnings beat is concerned, the company has an excellent history. Over the trailing four quarters, it surpassed estimates in each of the last four quarters, delivering an average positive surprise of 48.89%.

Concho Resources Inc. Price and EPS Surprise

Concho Resources Inc. Price and EPS Surprise | Concho Resources Inc. Quote

Let’s see how things are shaping up for this announcement.

Which Way Are the Estimates Trending?

Estimate revisions help to get a clear picture of analysts’ opinion on the stock before the earnings release.

The Zacks Consensus Estimate for the first quarter moved up by 3 cents to 82 cents per share over the last 30 days. It was further up by a penny in the last seven days. Further, the current estimate also reflects year-over-year growth of 67.3%. It is also above the last reported quarter earnings of 66 cents.

On a further encouraging note, analysts polled by Zacks expect revenues of more than $790 million for the quarter, indicating a rise of more than 29% from the year-ago quarter. The revenue estimates are also higher than prior-quarter revenues of $780 million.

Let’s delve deeper to find out what’s going in favor of the stock.

Factors at Play

Concho’s core operations are focused on the prolific Permian basin, providing this upstream player with an enviable acreage of low-risk top-tier assets and a multiyear drilling inventory. Moreover, the company added various multi-well projects across its portfolio in 2017, which will drive its ambitious growth plans.

The Zacks Consensus Estimate for daily production of this Midland, TX-based upstream operator is currently pegged at 218.2 thousand barrels of oil equivalent (MBOE), higher than 181.4 MBOE reported in the year-ago quarter and 211.1 MBOE in the prior quarter.

The company – currently executing on a strategy to remain within cash flow – expects to increase its output at a compound annual growth rate (CAGR) of 20% over the 2017-2020 timeframe. Lifting its production outlook for 2018, the company expects its total output to grow 16-20%, with crude oil growth about 20%. Concho’s impending buyout of RSP Permian, Inc. RSPP will also enhance the company’s estimated compounded annual growth rate over the 2017-2020 time frame along with providing the company with financial, commercial and operational synergies.

Along with higher production volumes, higher realized prices will also aid the company.

The first quarter of the year saw the U.S. oil benchmark attain its highest settlement since December 2014, despite record high domestic production. Crude was supported by various catalysts including strong demand and continued production curb from OPEC and its allies.

Analysts polled by Zacks envision realized prices to increase year over year, which will boost Concho’s top line. The Zacks Consensus Estimate for average oil price is expected to jump 20.2% from the year-ago quarter to $59 a barrel. The estimate is also higher than the prior quarter’s realized price of $52.84 per barrel.

The Zacks Consensus Estimate of $134 million for natural gas sales in the to-be reported quarter is higher than the year-ago quarter’s $110 million. Oil sales are expected to amount to $705 million, significantly above $502 million recorded in the first quarter of 2017.

Overall, rebounding crude prices and strong production growth are likely to boost the company’s performance this quarter as well.

What the Zacks Model Unveils

Our proven model also shows that Concho is likely to beat on earnings in the to-be-reported quarter because it has the right combination of two key ingredients.

Zacks ESP: Earnings ESP for this company is +2.65%. This is because the Most Accurate Estimate of 84 cents is pegged higher than the Zacks Consensus Estimate of 82 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Concho carries a Zacks Rank #3 (Hold), which when combined with a positive ESP, makes us confident of an earnings beat.

Note that stocks with Zacks Ranks #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating estimates. Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

Other Energy Stocks With Favorable Combination

Concho is not the only energy firm looking up this earnings season. Here are some companies within the same industry, which, according to our model, also have the right combination of elements to post an earnings beat this quarter:

EOG Resources, Inc EOG has an Earnings ESP of +4.71% and a Zacks Rank #1. The upstream player is anticipated to release earnings on May 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Energen Corporation EGN has an Earnings ESP of +0.70% and a Zacks Rank #2. The independent oil and gas explorer is anticipated to release earnings on May 8.

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Energen Corporation (EGN) : Free Stock Analysis Report
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