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Can Southwestern Energy (SWN) Deliver a Beat in Q4 Earnings?

Zacks Equity Research

Southwestern Energy Company SWN is scheduled to release fourth-quarter 2018 results after the closing bell on Feb 28.

In the preceding three-month period, the company delivered a positive earnings surprise of 19.1% on the back of higher production and realized prices of commodities. Further, the company delivered average positive earnings surprise of 14.8% in the last four quarters.

Southwestern Energy Company Price and EPS Surprise

Southwestern Energy Company Price and EPS Surprise

Southwestern Energy Company price-eps-surprise | Southwestern Energy Company Quote

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

Earnings Whispers

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

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, stands at +6.06%. This is a very 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: Southwestern Energy currently carries a Zacks Rank #3 (Hold), which when combined with +6.06% ESP makes us confident about an earnings beat.

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

Which Way are Estimates Treading?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts expect from the company this earnings season.

The Zacks Consensus Estimate for fourth-quarter earnings of 34 cents has witnessed four upward and two downward revisions by firms in the past 30 days. This reflects a whopping improvement of about 183.3% from the year-ago quarter.

Further, the Zacks Consensus Estimate for fourth-quarter revenues is pegged at $1 billion, up 23.7% from the year-ago level.

Factors at Play

Based in Houston, TX, Southwestern Energy engages in the exploration, development and production of natural gas and crude oil in the United States. The company operates under two segments, namely Exploration and Production, and Midstream Services. The Exploration and Production segment is involved in operations on the Arkansas side of the Arkoma Basin, as well as exploration and production activities in Oklahoma, Texas, and Pennsylvania. The Midstream Services segment engages in the marketing of its own gas production as well as third-party natural gas, and transportation of natural gas.

Due to significant upstream presence, the company’s revenues are highly dependent on commodity prices. In the last reported quarter, 85.3% of Southwestern Energy’s total production was natural gas. Per the U.S. Energy Information Administration (EIA), the average natural gas prices in the months of October, November and December 2018 were reported at $3.28, $4.09 and $4.04 per million British thermal units, higher than $2.88, $3.01 and $2.82 recorded in the respective months of 2017.

Moreover, the average WTI crude prices in October and November 2018 were recorded at $70.75 and $56.96 per barrel, higher than $51.58 and $56.64 in the respective months of 2017. However, the average crude price in December 2018 declined on a year-over-year basis. Overall, the year-over-year uptick in natural gas prices in fourth-quarter 2018 and surge in oil prices in the initial two months of the quarter will likely have a positive impact on the company’s exploration and production operations.

Production outlook seems favorable as Southwestern Energy projects fourth-quarter total output in the range of 247-255 billion cubic feet equivalent (Bcfe), much higher than the year-ago period’s 239 Bcfe.

It is to be noted that the company had earlier stated that its internal cash flow was used to finance 2018 spending, further reflecting the energy player’s strong operations.

Other Energy Stocks With Favorable Combination

Here are some other companies from the same sector, which according to our model have the right combination of elements to post an earnings beat in the upcoming releases.

Par Pacific Holdings, Inc. PARR has a Zacks Rank #2 and an Earnings ESP of +21.70%. The company is scheduled to report quarterly earnings on Mar 5. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cactus, Inc. WHD has a Zacks Rank #3 and an Earnings ESP of +1.11%. The company will report quarterly earnings on Mar 6.

Goodrich Petroleum Corporation GDP has a Zacks Rank #3 and an Earnings ESP of +2.02%. The company is set to report quarterly earnings on Mar 5.

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